Increasing Term Insurance Plan

About Increasing Term Insurance

Increasing term insurance is a type of term insurance plan where the coverage grows over time. This means the sum assured doesn’t stay fixed, but it increases over an ascertained period of time by a fixed amount or percentage. It helps people keep up with changing life goals, especially as prices and responsibilities grow over time.

How does an Increasing Term Plan Work?

Let’s understand how the increasing term plan works with the help of an example. Please note, this is just an illustration, actual amounts may vary depending upon the plan chosen and the terms and conditions mentioned therein

Mr. Sharma buys an increasing term plan with a sum assured of Rs.25 lakhs. The plan allows an increase of 5% of the original sum assured (at policy inception) every year. The maximum increase is 100% of the sum assured. The plan is taken for a period of 25 years.

In this case, the sum assured would increase by Rs.1.25 lakhs every year. The increase would continue till 20 years after which the sum assured Will not increase beyond the 100% sum assured limit. Since a maximum increase of 100% of the sum assured is allowed, no further increase would be allowed from the 21st policy year.

Here’s how the plan would work in different instances –

Case 1 – The plan matures

No benefit would be paid on maturity. The policy would simply terminate

Case 2 – Mr Sharma dies in the 1st policy year

In the first policy year, the sum assured would remain at Rs.25 lakhs. The increase starts in the second policy year. Thus, the nominee would get Rs.25 lakhs in the claim and the coverage would be terminated.

Case 3 – Mr Sharma dies in the 7th policy year

The sum assured in the seventh year would be Rs.25 lakhs + Rs. 7.5 lakhs in an increased amount. Thus, a benefit of Rs. 32.50 lakhs would be paid and the plan would be terminated.

Case 4 – Mr Sharma dies in the 22nd policy year

The sum assured of Rs. 50 lakhs Rs.25 lakhs original + Rs.25 lakhs of increase in the first 20 years) would be paid to the nominee and the plan would be terminated.

Important Aspects Of The Increasing Term Plan

Premium

The premium of an increasing term plan remains constant over the policy tenure. Though the sum assured increases every year, the premium doesn’t.

Increase Coverage

The most important feature of an increasing term insurance policy is the growing cover. It’s usually increased annually, either by a fixed percentage or a flat amount, depending on your insurer’s terms.

Riders

Increasing term insurance policies also allow multiple riders to choose from. These riders are available at additional nominal premiums and help you enhance the coverage of the policy. Some of the popular riders that are available includes the following –

Reasons to Consider Increasing Term Insurance Plan

Some of the reasons why increasing term insurance plans makes sense are as follows

1. Protect against inflating prices

   Inflation increases the price of goods and services over time. As such, household expenses increase with time. An increasing term policy increases the coverage level so that the family gets a higher payout if the assured passes away during the policy tenure. This higher payout may help the family meet the increased expenses .

   
   

2. For future goals

   If the individual expects his goals to increase with time, increasing term insurance is a good choice. The plan enhances the sum assured so that the life assured or policyholder can plan for a more funds for the enhanced goals.

   
   

   For instance, if the life assured is planning a family in the future, a higher corpus would be suitable for the child’s higher education and marriage.

   
   

3. For their affordability

   Under increasing term plans, the sum assured increases over time but the premiums usually don’t change once the policy is issued. As such, you can enjoy increased coverage at constant and pocket-friendly premium rates as compared to other plans since the premium is determined basis the initial coverage amount, making this plan relatively affordable!

   
   

4. Aligning Coverage with your needs

   The sum assured grows at a fixed rate throughout the policy term, helping policyholders meet increasing financial obligations that arise over time, such as marriage, starting a family, buying a home, and funding children’s education.

   
   

Advantages of Increasing Term Insurance Plan

Here are some advantages that make an increasing term plan useful –

• Helps as a backup where Financial expenses are increasing

  While your expenses might be lower in current situations, they are expected to rise in future as your financial obligations increase. In such cases, the increasing term plan proves relevant. It accounts for the increasing financial expenses of your household and pays a higher sum assured in the case of an unfortunate premature death during the policy term. This may help your family to tackle the increased expenses in your absence.

  
  

• Cope against inflation

  The increasing term plan may help you cope against inflation which drives up the cost of your financial goals. For instance, if higher education for your child might cost Rs.20 lakhs in current times, it may rise considerably a decade or two later. Thus, when you have an increasing term plan, you may be able to create a sizeable backup corpus against the inflated costs.

  
  

• Affordable

  The premium for increasing term plans are affordable.

  There’s also an option to choose your premium payment mode. You can pay a lump sum premium at once and pay for a limited tenure or over the entire policy tenure. You can also break down the premium into half-yearly, quarterly or monthly modes to make it more affordable.

  
  

• Tax savings

  Lastly, increasing term plans also offer tax benefits. The premium is deductible from your taxable income under section 80C, as per the provisions of the Income Tax Act, 1961. You can apply for a tax deduction of a maximum of Rs.1.5 lakhs only under old regime of Taxation. Moreover, the death benefit paid under the policy is also exempted from tax under Section 10( 10D) in your nominee’s hands, as per the provisions of the Income Tax Act, 1961.

  
  

Who Should Buy An Increasing Term Plan?

An increasing term policy becomes all the more relevant in the following instances if–

You want to create a backup corpus taking inflation into consideration, for your family in your absence

Your financial responsibilities or expenses would increase in the future

You want to opt for a higher sum assured for your family’s complete financial security.

When Should You Increase Your Term Insurance Coverage?

There are certain life situations when it makes sense to increase your term cover. These are situations when your financial responsibilities rise, and you’ll want your policy to match that.

Marriage or Starting a Family

Getting married or having a child means more people are counting on you financially. A growing sum assured helps ensure that your loved ones are protected even after your demise .

Taking a Home or Personal Loan

Loans add to your financial burden. If you pass away, your family will be left with those financial liabilities. Increasing term insurance gives them a better safety net over time.

Salary Hike or Change in Lifestyle

As your income grows, so do your living expenses. It’s a good idea to increase term insurance coverage when your lifestyle or financial goals shift. This helps keep your family’s financial future secure.

Planning for Children’s Education or Future

The cost of education and fulfilling life goals usually increase every year. An increasing term insurance plan lets you build a bigger safety fund over time to cover these rising costs.

How To Buy An Increasing Term Insurance Policy?

An increasing-term insurance policy is available online as well as offline. Here’s how you can buy the policy –

● Offline

You can visit the branch of the insurance company or contact an insurance agent. Fill up a physical proposal form and submit it with your relevant documents. The insurance company will underwrite the proposal. Premium payment is to be made only after the insurer communicates acceptance of the proposal, following which the policy will be issued.

● Online

You can visit the insurer’s official website or an insurance marketplace to buy increasing term insurance online. Fill up the online application form and pay the premium online. The insurer would assess your proposal and premium payment is to be made only after the insurer communicates acceptance of the proposal, following which the policy will be issued.

Comparison of Increasing Term Insurance Plans With Other Types Of Insurance Plans

Here’s how increasing term plans fare against other types of term insurance plans –

Potential Limitations of Increasing Term Insurance Plans

While these plans offer rising financial protection, it’s important to know their limits:

• Premiums may be higher as compared to regular term plans, due to enhanced coverage for future needs.
• Like most term insurance plans, they only offer a death benefit and no maturity benefit.
• There’s often a limit to how much your cover can increase, based on the insurer's terms and conditions.
   

Conclusion

An increasing term plan increases the effective coverage level every year. It helps meet your increasing financial responsibilities and provides financial security against unforeseen situations. So, assess your needs and then opt for the increasing term plan if it aligns with your coverage requirements

Key Takeaways

• Coverage increases over time: The sum assured steps up, giving you better financial protection.
• Helps work around inflation: An increasing cover means your family gets a payout that can provide buffer against inflation.
• Suitable for growing responsibilities: Such plans are suitable for individuals planning to have children, those with outstanding loans, or anyone with other long-term goals.
• Tax benefits apply: Premiums in an increasing term plan also enjoy tax exemptions under Section 80C of the old regime.
   

FAQs

1. What are the circumstances in which the coverage amount increases?

   Usually, in increasing term plans, the sum assured increases at regular intervals at predefined rates. However, if you choose plans which offer the option to increase the sum assured at important milestones of life, the coverage would increase on those milestones, for example, marriage, and childbirth.

   
   

2. Can I add riders like critical illness or disability coverage to an Increasing Term Insurance Plan?

   Yes, increasing term insurance plans might offer optional riders with the coverage. You can add the available riders and enhance the scope of the policy. Contact your insurance provider to know more.

   
   

3. Is the premium fixed in increasing term insurance plans?

   In increasing term insurance policies, the premium may or may not remain fixed depending upon the insurer and the plan, although the sum assured increases over time.

   
   

4. How is increasing term insurance different from level term insurance?

   In a level term plan, the coverage stays the same throughout the term of the policy. But in an increasing term insurance plan, the coverage grows over time to match rising responsibilities .

   
   

5. What happens to the increasing sum assured after the life assured's death?

   If the life assured passes away during the policy period, the policy terminates, and the nominee is paid the prevailing sum assured applicable as on the date of death.