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Do Term Life Insurance Premiums Increase?
Do term life insurance premiums increase? Once you have a term policy in place, the answer is typically no. But if you are applying for a new policy, renewing an old one, or have an increasing term, premiums do go up as you age. Let’s get into the details.
What Are Life Insurance Premiums?
Life insurance premiums are essentially your subscription to an insurer for coverage. As long as you pay your premiums, they will pay your death benefit to your beneficiaries when you die.
Different insurance products may have more or less expensive premiums, depending on the features of your coverage. For example, permanent policies are more expensive because they include a cash value component that grows tax-deferred as you make payments. A portion of every payment goes into your cash fund, while the rest covers your cost of insurance. Term life insurance is more affordable because there is no cash value, and because there is less risk for the insurer with a policy that could expire while you are still alive.
Premiums are calculated based on your life expectancy and the coverage you're shopping for. Life expectancy is determined by factors such as your age, gender, preexisting health conditions, medications you are on, drug use, and whether you have a high-risk occupation. These factors, along with the type and amount of coverage, all go into determining your premiums. If you are younger and in good health, you will pay less. As you age, your premiums will increase. There are some health conditions or occupations that may disqualify you from certain types of coverage, in which case you may consider a guaranteed issue or no-exam policy.
While guaranteed issue policies can be simple and are often affordable, they may not offer you the protection you’re looking for. If you qualify for traditional term or permanent coverage, you may want to explore those options first. Term protection is generally the most affordable option, because 100% of your premium is going towards the cost of insurance. Permanent policies are more expensive, but they accumulate a cash value that can be accessed during your lifetime.
What Is Term Life Insurance?
Term life insurance is just that – protection that lasts for a specified period. Policy lengths typically range from 5 to 30 years, although other terms do exist depending on your insurer. If you stay up-to-date with your premiums and die within the period of coverage, your beneficiaries will receive the death benefit, or face value, of your life insurance.
In comparison to permanent policies with the same death benefit amount, term life insurance is simpler and more affordable. However, this is due to the lack of a cash value component and added risk. If you outlive your policy, you will either have to renew at a higher cost due to your higher age and any new health conditions or be left without protection. If you outlive your policy, you will not be refunded your premiums and your loved ones will not receive a death benefit. It may be possible to convert your term life insurance to permanent to get coverage sooner at a more affordable price and convert down the road.
There are several kinds of term life insurance:
- Level Term: the traditional form of term life insurance has level premiums that are determined during the underwriting process when you apply for coverage, and they remain fixed. The death benefit amount is also fixed, offering you security in knowing exactly how much you’ll be paying each month and how much your loved ones will receive when you die.
- Yearly Renewable: a one-year policy that can be continually renewed without going through the entire underwriting process again. However, each year the premiums rise due to your higher age. If you need temporary insurance for a few years, this may be a good option to consider, but it may be more expensive in the long run if you renew for several years.
- Decreasing Term: usually purchased in tandem with a mortgage or similar expense, the death benefit declines each year according to a predetermined schedule. The premium you pay will be fixed, and it may be lower than a level term. This coverage is designed to ensure you don’t leave your loved ones with a large mortgage to pay off, but as you live and make payments, that expense decreases.
- Increasing Term: sometimes referred to as incremental term coverage, this policy has a death benefit that increases in value each year by a specified amount. Your premiums may also increase yearly, or they may start off at a higher rate and remain constant. It may be difficult to find this type of life insurance in the United States with most major insurers. While the rising death benefit can protect against inflation, you start off with higher premiums for less protection, and there may e maximum limits that prevent larger death benefit payouts. If you die early into your term, you may not secure the benefits of paying higher premiums.
The type of coverage that is best for you depends on your financial goals and budget. If you’re not sure where to start, call us at (800) 521-7873 and let us help you sort it all out.
Do Term Life Insurance Premiums Increase?
If you purchase a level or decreasing term life insurance policy, your premiums will remain fixed for the entire length of your coverage. However, if you purchase yearly renewable or increasing term protection, your payments will get more expensive over time. It is important to consult your financial advisor or life insurance agent when shopping for a policy to make sure your needs are met. If you have the budget to pay higher premiums, you may want to consider shopping for permanent protection or converting your term policy to whole life down the road. This will offer you the benefit of growing cash value and ensuring your loved ones will receive a death benefit no matter when you die.
If you are considering applying for coverage, it is important to keep in mind that your rates will increase every year as you age, and they will also increase if you develop any health conditions. A 35-year-old with no health conditions will find more affordable protection than a 50-year-old with diabetes, heart disease, or any other conditions. You may want to lock in low rates while you are young and in good health instead of waiting.
Is Term Life Insurance Right for You?
It can be stressful to shop for life insurance, especially if you don’t know what kind of coverage is right for you. If getting the most coverage per dollar is your goal, term could be a good option. It is a more affordable option, but it lacks several key benefits of permanent coverage. Permanent policies allow you to build wealth that can be accessed while you’re still alive, and there is no end date on your protection. If you’re looking to strengthen your financial portfolio and gain long lasting peace of mind, it’s important to consider permanent policies as well.
You can get a quote from us today to begin shopping, and our life insurance agents can help you determine what’s right for you.
Bottom Line
Shopping for life insurance can be confusing and stressful with the various products and premiums. Lucky for you, we are here to help. If you want to secure a term policy with premiums that stay the same, level term is affordable, simple, and can offer your loved ones financial protection. Want to learn more or get a quote? You can do so here on our website or give us a call at (800) 521-7873. Let us help get you covered today.
