How to hike your Term Insurance Policy Coverage after buying it?
Term insurance offers financial protection to the surviving members of the family in case the primary or the sole breadwinner passes away. Today, you can even purchase term insurance from the comfort of your home. The term insurance coverage that this kind of policy offers is valid for a specified period known as the policy term. In return for the term insurance coverage offered, the policyholder needs to pay premiums to the insurance provider regularly.
Term insurance benefits are primarily limited to the death benefits paid out by the insurance company.
In case the insured person passes away during the policy term, the death benefits under the plan is paid out to the nominees. The amount paid out maybe enough to help the family members meet their everyday needs and fulfill their life goals.
This is why it is important to choose adequate term insurance coverage when you buy a term insurance plan. But what do you do if you find that the term insurance coverage you opted for is not enough? Is it possible to hike your term plan coverage after buying it?
While that is not possible in all term insurance plans, some term policies offer a feature called life stage protection, which can help you hike your coverage as needed at different life stages.
How does Life Stage Protection Work?
Life stage protection is a beneficial feature that some term insurance plans offer. As per this feature, you can increase the sum assured under the plan by a predetermined percentage at certain specified milestones in your life.
Typically, life stage protection comes into effect at the following key milestones in your life.
- When you get married
- When you have your child (this is generally valid up to two children)
- On taking a home loan
So, for example, say you have purchased an online term insurance at the age of 25, with a sum assured of Rs. 1 crore. Now, say the plan offers life stage protection with a 50% hike when you get married and a 25% hike upon the birth of your child (up to two children). So, in this case, here is what your term insurance coverage may look like at the concerned milestones. Typically, there is a cap on the maximum amount up to which the coverage can increase.
Increase in term insurance coverage
New coverage after the hike
Your marriage at age 30
50% of Rs. 1 crore = Rs. 50 lakhs
Rs. 1.5 crores
The birth of your first child
25% of Rs. 1 crore = Rs. 25 lakhs
Rs. 1.75 crores
The birth of your second child
25% of Rs. 1 crore = Rs. 25 lakhs
Rs. 2 crores
The birth of your third child
Rs. 2 crores
How much Additional Coverage do you need?
The exact amount of additional term insurance coverage you need depends on several factors. Broadly speaking, here is what you need to take into account to determine how much to hike your insurance coverage.
● Your family’s expenses
The additional coverage should be enough to help your family meet their everyday expenses without any trouble. Here, you also need to factor in inflation. This can ensure that your loved ones can continue to enjoy the same lifestyle they do now, without any adjustments to their standard of living.
● Your children’s education
Your children’s education is one of the major milestones that your term insurance plan may account for. It is also vital to ensure that your children have access to the best education available. So, the sum assured you choose should be enough to cover this need.
● Your family’s important life goals
There may also be other important life goals that your family is chasing, like owning their dream home and paying for your children’s wedding. These are major milestones that can be quite expensive. So, the additional coverage should be enough to provide for these life goals too.
Once you have factored these aspects into your financial plan, you may get a better idea of the additional coverage you need. This increase in coverage is capped by insurance companies and the capping will vary from insurer to insurer and from product to product. If the additional coverage is not enough, you may always purchase another insurance policy to meet your needs for additional coverage.
Before you buy a term insurance plan, you need to carefully evaluate if your insurance coverage needs will increase in the future. Only then can you choose the appropriate life stage protection at the time of purchase itself. This may also help your family remain adequately financially protected even as you move from one milestone to the next.
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