If you’re shopping for a term life insurance policy, you may be wondering if the premium you pay for your coverage will increase.
First, let’s review how term insurance works and then we’ll explain how the premiums may or may not change over time.
Term Life Insurance Explained
Term insurance is life insurance that provides you with temporary protection, usually lasting for a duration of up to thirty years.
Term life offers you the option of choosing how long you are insured. You may be able to choose from Policy Terms of 10, 15, 20, 25, 30, 35 or 40 years.
The longer your policy term, the higher your annual cost of life insurance, because the chances of you dying are greater, the longer you are insured.
If you (The Insured) die while the policy is In Force, the death benefit is paid out by the insurance company to the beneficiary of your life insurance policy. The owner of the policy selects the beneficiary.
The death benefit proceeds are usually paid out to the beneficiary free from federal income tax.
If you (The Insured) are alive when the policy expires, your life insurance coverage ends, and there is no pay out of any benefits.
Most term insurance policies include the Option of Renewability, which means you can renew your life insurance when it expires, in case you still need coverage.
However, you need to contact the insurance company by a certain date stated in the policy in order to renew your coverage.
You will not be required to take a medical exam to renew your term insurance; however, your renewal premium will be higher because it is based on your age at the time of your renewal.
Compared to Permanent Life Insurance, which usually costs up to 5-10 times more than term life, you will find that term policies offer the most affordable type of life insurance to meet your temporary needs.
Do Term Life Insurance Premiums Increase?
Whether or not the premiums on a term life plan increase, and when they may increase, depend on the type of term policy.
Types of Term Insurance Policies
Level Term Life Insurance – Level term life is a type of term life insurance, which covers you for a specific period of time, usually from 10 to 30 years. Level Term policies expire after the term is up and don’t build any cash value inside the policy over time. Level term life insurance is a term insurance plan hat guarantees the premiums will stay the same for a specific term length; usually these terms are for 10, 15, 20 and 30 years. This means that no matter what your premiums are when you get approved for your policy, it will stay the same each year until the end of the term.
Annual Renewable Term Insurance – ART is a type of life insurance policy that provides coverage for one year. If the insured person dies within the one-year coverage term, the insurance carrier will pay out a death benefit to the beneficiary of the policy. You will not need to take a medical exam to renew your coverage, instead your policy is automatically renewable by paying your premiums, which increase each year at renewal.
Modified Premium Term Life – It’s a type of temporary life insurance plan that provides premiums that change over time, usually in 5 or 10 year intervals. Some modified premium policies provide term insurance coverage up to age 90, with changing (modified) premiums every five-year period. So, every 5 years your premiums will increase, and the coverage lasts until you reach 90 years old.
Renewable Term Life Insurance – When you purchase a term life insurance policy, it will last for a specific term length, usually from 5, 10, 15, 20, and 30 years. At the end of this term period, almost all life insurance companies offer you the option to renew your policy without having to prove proof of insurability – you won’t have to take a medical exam. You only have to accept the new premium payment terms, and you won’t have to go back through underwriting. The premium will increase when you renew your policy.
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