In this article:
Term life insurance policies are all about predictability, since most policyholders pay the same premium over a specified term with a defined death benefit. These features can help you make long-term plans and budget for your coverage. But in some cases, your rate can change during the policy term or when you renew.
What Is Term Life Insurance?
Term life is a type of life insurance policy that lasts a set period of time, typically 10 to 30 years. You purchase a policy with a specified term and level of coverage, then pay premiums on a monthly, quarterly or annual basis. If you die within the policy's term, your beneficiary receives a tax-free sum of money called a death benefit.
Both the premium payments and the death benefit typically stay the same throughout the duration of the term. This feature is one reason many people choose term life insurance over permanent life policies. However, some term life policies have premiums that could increase at some point. Here's what you need to know.
Can Your Term Life Insurance Premiums Change?
Your term life insurance premiums usually won't change during the term, but the details depend on the type of plan you purchase.
- Fixed term: You'll make the same payment throughout the term, and the payout won't change.
- Annual renewable term: These policies charge the same premiums throughout the term and allow you to extend coverage at the end of each year. The price may increase each time you renew the policy because it's based on factors like your age and health status.
- Decreasing term: Your premium payments decrease over time, which can result in a smaller death benefit.
- Increasing term: These policies allow you to raise the value of your death benefit throughout the term, which could increase your premium payments.
How to Reduce the Impact of Term Life Premium Increases
Here are some ways you can keep your term life premiums lower:
1. Choose a Policy With Guaranteed Premiums
Choosing a level or fixed term life insurance policy can help ensure you won't have to deal with premium increases. The premiums are guaranteed to stay the same for the duration of the term, and the death benefit won't change. This type of policy can be a good fit if you prefer predictable payments.
2. Take Care of Your Health
Life insurance premiums are partly based on your health. Generally, a person may pay more when their lifestyle choices or health conditions make them riskier to insure. But you may be able to lower your rates if your health has gotten better since you bought the policy. You can ask your insurer for a "reconsideration" or "rate reduction," where the company considers lowering your rate based on your health improvements.
3. Shop Around
Life insurance policies work like many other financial products: Each insurer uses its own formula to evaluate your application and set a price for your policy. This means your premium could vary widely with each insurer.
When you're shopping for life insurance, get rate quotes from multiple providers and compare the prices, features and fees involved.
4. Choose the Right Term
You can save money by buying the right amount of coverage with a term that fits your lifestyle. For instance, a decreasing term life policy drops in price during the term. This can be a good option if your beneficiaries need less financial support over time. An annual renewable policy may be ideal if you need short-term coverage, while an increasing term policy is a good fit if you think you'll need to raise your death benefit.
5. Buy Life Insurance Early
Your life insurance premiums are heavily influenced by your age. Generally, you pay more as you get older because your risk of death increases. The years when you're older—and presumably more expensive to insure—are averaged into the premium. This helps your premiums stay level. Buying the policy at a younger age can help you pay a lower price from the start.
The Bottom Line
A term life insurance policy can financially protect your loved ones for a specified amount of time. The rate you pay on this type of policy is typically fixed, but your premium can change depending on the type of term policy you choose. There are ways to reduce the impact of these rate increases, though. Taking care of your health, comparing rates from multiple companies and buying life insurance early are all things you can do to keep prices low.
Remember, many states allow life insurance companies to consider a credit-based insurance score when determining your premium amount. If your state allows this practice, consider improving your credit before purchasing life insurance. Start by checking your credit report and credit score for free with Experian and addressing any issues you find on your report.