Increasing Term Insurance Plan – Know All About It

What is Term Insurance? It is a tool to ensure the financial security of our loved ones and to help them meet life goals irrespective of the unforeseen circumstances. Term life insurance plan, though cost-effective and simple, can play a very important role in securing the future of our family members.

When we buy a term life insurance plan, we take various factors into account such as income, expenses, liabilities, assets and financial goals. Our aim should be to buy a term insurance plan with a sum assured that will help meet estimated expenses and life goals in the future.

Nowadays, we can easily decide the monthly, quarterly, half-yearly or yearly premium amount to reach our life goals using an online term plan premium calculator. But life goals change and financial needs increase with age, life stages, inflation, and rising lifestyle and healthcare expenses. How do we take care of this changing dynamics with a single term insurance plan? The answer to this problem is increasing term insurance plans. Want to know more about this term policy? Here’s an exhaustive guide on increasing term insurance plans, how it works, its benefits, and how to buy one.

What is an increasing term insurance plan?

In an increasing term insurance plan, the sum assured increases every year by a predefined amount to adjust against inflation or other financial goals. Unlike a regular term insurance plan, an increasing term plan allows the policyholder to increase the sum assured during the policy period. Premiums in an increasing term policy may change or remain constant throughout the policy tenure.

An increasing term insurance policy can be effectively used to achieve your and your family’s life goals based on various life stages. For instance, with an increasing term life insurance plan, you can increase the sum assured during important milestones in your life, such as when you get married; when you have your first child; and when your child starts going to school, etc. You can plan to increase the sum assured by a certain percentage to adjust for increasing responsibilities and living expenses.

How does an increasing term insurance plan work?

We have already discussed the definition of an increasing term insurance policy and how it differs from a regular term insurance plan. Now, let’s understand how an increasing term plan works. This can be best done with an illustration.

Example:

Rohit Kumar is a 30-year-old man who buys an increasing term insurance plan with a sum assured of Rs. 30 lakhs. He is sure about his financial goals but wants to ensure that his loved ones’ have enough to stay on track with their life goals in the future. Using an online term plan premium calculator, he has also calculated the amount of premium he has to pay every year to reach his goal.

In this plan, the sum assured increases by 5% every year. So, if he bought the term policy on January 20, 2020, his sum assured on the next policy anniversary (Jan 20, 2021) will increase to Rs. 31.5 lakhs. Subsequently, it will keep on increasing until it reaches twice (60 lakhs) the sum assured on inception (30 lakh). Provided, the tenure of the term insurance policy is long enough for the sum assured to get doubled.

This is how the sum assured in an increasing term insurance rises every year. However, there are also other features and terms in such a term policy that you should be aware of, such as:

Change in premium rate

Though some insurance companies may decide to increase the premium along with a higher sum assured, generally, the premiums for increasing term life insurance remain constant. Insurance companies structure the premiums for these types of insurance policies in accordance with the increasing risk coverage, as such they don’t have to hike the premium charges during the policy term.

Increasing term insurance plans have higher premiums than a regular term policy.

Increase in coverage

Increase in sum assured is calculated as a percentage of the original sum assured or a specific amount. The rate of increase in coverage is decided on the commencement of the policy and cannot be changed during the policy tenure. Usually, the increased sum assured amount cannot cross twice the sum assured amount decided during policy inception. So, if the sum assured is Rs. 20 lakhs, the sum assured cannot grow more than two times the original amount, which is Rs. 40 lakhs.

Riders

Policyholders can also buy riders to increase the scope of coverage on their increasing term insurance plan at a nominal extra cost. Critical illness benefit rider, waiver of premium rider, and accidental death and disability riders are preferred riders to buy along with the increasing sum assured option.

Benefits of Increasing Term Insurance Policy

• Keeps your life goals intact - An increasing term insurance plan helps in robust financial planning where it takes into account rising costs, changing financial goals and milestones in life. It ensures that your loved ones get to enjoy the best in life no matter what the circumstances are. You get peace of mind by knowing that everything has been taken care of.

• Matches inflation - Sometimes even some investments are unable to meet returns on investment that match the rise in the cost of living due to inflation. However, with an increasing term plan, you don’t have to worry about inflation.

• Aligns with goals based on life stages - Even if you have bought the insurance plan as a bachelor, you can add your spouse to the increasing term insurance plan after you get married. You can also alter the premium payment frequency during the policy term based on the flow of your income.

Is an increasing term plan for you?

An increasing term insurance plan is a perfect recipe of financial security if you are a young working professional, self-employed or business owner. It helps you to plan for rising responsibilities and increasing liabilities in the future in advance and beat inflation.

How to buy an increasing term insurance plan?

You can buy an increasing term insurance plan online by visiting the websites of various insurance companies. You must be minimum 18 years of age and maximum 60 years old to buy this term policy. To buy the policy, you need to furnish your KYC and other documents as requested by your Insurer. Note that the surrender benefit or maturity benefit are subject to policy terms and conditions.

However, an increasing term insurance plan has innumerable benefits and is perfectly designed to help you meet your life goals.