What is Increasing Term Insurance Plan in India?

In the world of insurance, term insurance is the most basic and essential product for securing the financial future of your loved ones. The beauty of term insurance is that it offers high protection at an affordable cost. However, the need for a higher sum arises as life evolves and responsibilities go up. That is where increasing term insurance can serve as a strategic solution.

Read on to learn more about the increasing term insurance plan, its benefits and how it can solve your increasing financial protection requirement.

Increasing term insurance, as the name implies, is a kind of insurance plan in which the base sum assured increases by a specific amount annually.

Thus, it keeps pace with the rising inflation and increasing financial liabilities. The premium for an increasing term plan is usually higher than a traditional one. Still, it allows you to increase your coverage without having to go through the hassle of buying a new policy.

An increasing term plan is an excellent option for individuals who want to ensure their insurance coverage keeps pace with their changing financial needs.

Let’s understand the workings of an increasing term plan with an example.

Suppose Mr Raman buys an increasing term plan with the base sum assured of 50 lacs for 30 years.

His policy mentions an increase of 5% every year. This 5% is calculated on the base sum assured and hence, the sum assured increases by 2.5 lacs every year.

The policy also mentions that the sum assured cannot go beyond a 100% increase. Thus, after the 20^th policy year, when the sum assured has gone up to 1 crore, it cannot be increased further.

Let’s see the different cases that might occur:

Case 1:

Mr. Raman survives the 30-year policy period.

In such case, the policy will terminate on maturity and no maturity benefit will be paid since it’s a term plan.

Case 2:

Mr. Raman dies in the 6th policy year.

In the 6^th year, the sum assured would be Rs. 50 lacs + 2.5*5, i.e., 62.5 lacs. This sum assured would be paid to his beneficiary.

Case 3:

Mr. Raman dies in the 27^th policy year.

As mentioned, the sum assured would stop increasing beyond 1 crore in the 20^th year. Thus, in case Mr. Raman dies in the 27^th year, a sum assured of Rs. 50 lacs + Rs. 50 lacs (for 20 years) would be paid to his dependents.

1. Young Professionals

2. Individuals with Dependents

Individuals with dependents such as children, spouses, or parents should opt for an increasing term insurance plan. Children will need future funds for education and parents will need medical aid.

There would be other liabilities, too, that just keep increasing with time. Hence, an increasing term plan ensures that their family is financially protected in case of their untimely demise.

3. People with Inflationary Pressures

People who have good income and are concerned about inflationary pressures must consider buying an increasing term plan.

With good income and elevated lifestyle, they have higher liabilities and concerns about future cost of living. An increasing term insurance plan in this case offers protection against the rising cost of living.

4. Individuals with Long-term Financial Goals

Individuals who have long-term financial goals such as child's education or retirement should opt for an increasing term insurance plan.

While you are saving through investment for these goals, there must be a cover to save these long-term goals in case of your unfortunate demise. An increasing term plan offers financial protection and helps to keep up with inflation.