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Can you increase term life insurance coverage?

Woman looking at bills
JGI/Jamie Grill/Getty Images/Tetra images RF

Term life insurance is a popular way to protect your loved ones financially in case you unexpectedly pass away during a specific period of time. However, as the years go by and your life changes, a contract you previously purchased may no longer provide as much coverage as you need.

Term policies typically have fixed death benefits and pay out during a certain number of years. However, if you need to increase your coverage, you have options. Here's how to bolster your term life insurance and why you might consider it.

Term life insurance and changing coverage needs

Term life insurance provides a payment to your beneficiaries if you die before the contract expires. A term contract typically lasts for 10, 15, 20 or 30 years, and it's meant to cover financial obligations that end before the term does. You might choose a 30-year term to cover a 30-year mortgage or the next 30 years of income you hope to earn, while a 10-year term might be a good match for a small business loan.

Additional responsibilities and obligations in your life often reflect the blessings you've received: a promotion at work, a new child, a larger home or the opportunity to care for aging parents who have done so much for you. Feelings of increased financial pressure can accompany these changes. Protecting those who rely on you with additional life insurance can alleviate some of that stress. Term life insurance can provide that extra boost at a relatively low cost.

Other life events that can impact coverage include getting married or divorced, losing the life insurance you had through work and seeing your children graduate from college. Some of these changes might mean you need less coverage, so it's good to know you can cancel a term contract without penalty. You also could choose to keep the extra coverage, perhaps changing the beneficiary to a charity or another relative.

Increasing the death benefit on your existing coverage

Many term life insurance contracts are written with a level death benefit, a renewable term and noncancelable coverage. Your premiums don't increase as you age, and your contract remains in force—regardless of any changes to your health—as long as you pay the premiums. Many people consider this stability to be one of the main benefits of life insurance. However, your coverage doesn't increase, either, even with high inflation.

Another type of term coverage renews annually. It costs less initially, but the premiums increase each year as you get older while the death benefit remains the same.

Finally, some term life insurance contracts have provisions that allow you to add to your death benefit by a certain dollar amount or percentage at specified times without medical underwriting. These are called increasing term policies. Decreasing term policies do the opposite, allowing you to reduce your coverage and premiums over time. Neither is widely available today. However, here are a few options that might work for you.

Buying big in anticipation of future needs

The younger and healthier you are, the larger the death benefit you can purchase for the same premium. That might be a good enough reason to apply for more coverage than you currently need.

Consider a recently married couple in their mid-20s who just closed on a mortgage to buy their first home. Both partners work full time and plan to pursue decades-long careers. Their only financial concern is leaving the other one with a home they couldn't afford on one income. They agree that the upheaval of selling a home and moving shouldn't be part of the grieving process if one of them dies young.

They also have lots of dreams, though they aren't sure which ones they'll decide to pursue. Will they have children, and if so, how many? Will either of them start a business or take out loans to pursue an MBA? What about moving to a bigger home or a different part of the country that might have a higher cost of living?

They can foresee various scenarios where there'd be additional expenses to preserve their family's lifestyle, and their financial responsibilities could multiply. Accordingly, they decide to each buy a 30-year, $1.5 million term policy naming the other as the beneficiary—even though their only obligation right now is a $400,000 mortgage. These term contracts allow them to reduce their death benefit if they decide they want to cut back on their coverage (and therefore, their premiums) later on, which can be much simpler than attempting to add extra coverage in the future.

Purchasing an additional term policy to ladder your coverage

Instead of trying to estimate your future coverage needs and paying higher premiums that you're not sure would benefit you, you might consider laddering your coverage. This means purchasing more than one term life insurance contract to more closely align your coverage with your needs and, possibly, your budget.

For example, instead of purchasing one 30-year policy with a $1.5 million death benefit, you might purchase three smaller policies with 10-, 20- and 30-year terms. The 20-year policy might provide $1 million in coverage to account for the years when you expect to have the largest responsibilities and the least accumulated savings. Meanwhile, the 10- and 30-year policies might each provide an additional $250,000 in coverage to reflect a larger mortgage balance when you're younger and a just-in-case benefit when your children have moved out and you're approaching retirement. Your coverage could potentially look like this if you took out the policies at age 35:

  • Age 35: $1.5 million
  • Age 45: $1.25 million
  • Age 55: $250,000
  • Age 65: $0

You don't have to purchase all three policies at the same time. You can purchase a smaller policy now and a larger one later, or a larger policy now and a smaller one later. Your laddered policies could all have the same term, but you could buy them at different ages. Additionally, they could have identical death benefits or different death benefits. You might add riders to some and not to others, though adding coverage later on will become more expensive as you age and likely require you to go through underwriting again.

Keep in mind that the term length available to you typically decreases as you age. For example, Thrivent doesn't issue 30-year terms to individuals who are 56 and older, but you can still purchase a 15-year policy at age 70 or a 10-year policy at age 75. Also, health may change as you age, which can affect insurability and premiums.

Laddering terms is a strategy you can use by itself or in conjunction with the next strategy.

Converting your term policy to a permanent policy

If you're looking for term life insurance with more flexibility, a contract that allows you to convert your term insurance to permanent insurance may be a good choice. You could benefit from the lower premiums of a term life insurance contract as well as the sense of reassurance that you can later lock in a death benefit for the rest of your life (as long as premiums are paid and the contract retains value) even if you're less healthy at that time.

Converting your policy typically increases your premiums. Permanent coverage costs more not only because it doesn't expire after a certain number of years, but also because it can accumulate cash value that you can access for various purposes, including retirement income.*

However, you don't have to pass another medical exam or undergo another review of your medical history. If your health has improved, you might even want to apply for a new policy and see if you can get more coverage for the same amount of money (while keeping in mind that premiums tend to be higher the older you are).

Maybe you'd prefer to buy a permanent policy from the get-go, but it's not within your budget. Though this would be the most cost-effective option long-term, a term-to-permanent contract offers the ability to adjust anytime within the contract's conversion period if you end up needing longer-lasting protection. You pay extra for this option, but you pay less initially than if you purchased a permanent policy upfront.

Extend your coverage for additional reassurance

Life can change in ways you didn't anticipate in the years after you take out a term policy. You might have additional family members to provide for, obtain an ownership stake in a business or take on additional debt.

If you're not sure how much life insurance you need to protect your loved ones, Thrivent's life insurance calculator can help you estimate your ideal coverage amount. Then, you can feel confident connecting with a financial advisor who can customize your coverage to suit your needs and budget.

*You can access the cash value of a permanent life insurance contract during your life to pay for expenses, as long as you understand the consequences of doing so. For example, removing money from your contract can result in potential charges and income changes that affect your taxes. If you have a modified endowment contract, your actions may not be tax-free. Withdrawing money decreases the contract’s cash value and the value of your death benefit. And can result in cancellation of your life insurance coverage if you withdraw too much. If you remove money, it will take you longer to meet your contract goals. Always talk with your tax advisor and financial professional to learn about those implications up front.

If requested, a licensed insurance agent/producer may contact you and financial solutions, including insurance may be solicited.

Hypothetical examples are for illustrative purposes. May not be representative of actual results.