Simplifying Life Insurance in India
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.
What is an Increasing Term Insurance?
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.
How Does an Increasing Term Insurance Plan Work?
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 20th 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 6th 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 27th policy year.
As mentioned, the sum assured would stop increasing beyond 1 crore in the 20th year. Thus, in case Mr. Raman dies in the 27th year, a sum assured of Rs. 50 lacs + Rs. 50 lacs (for 20 years) would be paid to his dependents.
Features of Increasing Term Life Insurance
The major features of increasing term insurance include the following:
1. Increasing Coverage
The increase in sum assured that this term plan offers, happens on a certain rate. This rate is decided at the inception of the policy and remains same throughout the policy tenure. Some policies also have a cap on the maximum sum assured that can be reached.
2. Constant Premium Rates
An increasing term plan is an affordable way to ensure your family's financial security in the long run. While the sum assured increases every year, the premium is decided at the inception of policy and remains constant throughout the tenure of the policy.
3. Flexible Death Benefit Payout
While some plans pay the death benefit as a lumpsum on death of the life assured, a few others provide you the flexible option of receiving death payout in the form of monthly, increasing monthly or monthly + lumpsum instalments.
4. Additional Riders
You can customize your plan with additional riders as per your requirements. They can be added with a nominal fee and enhance the coverage of your policy. Some of the most common riders are critical illness rider, accidental death rider and disability rider, terminal illness rider etc.
Benefits of Increasing Term Insurance Plan
Here are some of the major benefits of an increasing term life plan:
1. Helps to Beat Inflation
Insurance plans are long term investments. We usually buy term plans for 15-20 years. However, coverage that seems enough today might not be adequate tomorrow, with the ever-increasing inflation.
Thus, the increasing sum assured of the policy helps to keep up with inflation, ensuring that the policyholder's financial needs are met at every stage in the future.
2. No Additional Underwriting Required
In these plans, the sum assured increases annually as per a pre decided rate. Since it’s the same policy, you don’t have to undergo the process of underwriting every time the sum assured increases.
In the other case, if you had to buy a new policy to increase your sum assured, you will need to go through the hassle of underwriting again.
3. Provides Adequate Financial Protection
A person might not be aware of their future liabilities while buying their first term plan. With increasing age, the responsibilities evolve, the liabilities increase and financial goals change.
An increasing term plan offers increasing death benefit over time, ensuring that the policyholder's family is adequately financially protected, and their goals are met in case of untimely demise of the policyholder.
4. Tax Benefits
You can avail tax benefits on your premiums paid and the death benefit received under Section 80C and Section 10(10D) of the Income Tax Act, as per the prevailing tax norms.
Who Should Opt for an Increasing Term Insurance?
1. Young Professionals
Young professionals have just started their careers. They have a higher earning potential in future but are not sure what liabilities the future holds for them. An increasing term plan provides adequate coverage as their income increases.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.
Comparison of Increasing Term Insurance with Other Types of Term Insurance
An increasing term insurance plan is an ideal option for those who want to ensure that their family is financially protected in the long run. With the increasing sum assured feature, the policyholder can keep up with inflation and meet their financial goals over time, thus protecting their family’s future today and tomorrow.
FAQs about Increasing Term Insurance
Can I get a loan against my increasing term insurance plan?
How is the premium for an increasing term insurance plan calculated?
Can I increase the base sum assured of my increasing term insurance plan after buying it?
Why should I choose increasing term insurance over a level term policy?
Can the increase in coverage be customized?
Is there a limit to how much the coverage can increase?
How are the increases in coverage reflected in the policy premiums?
Is a medical exam required for increasing term insurance?
Does increasing term insurance provide any cash value?
How does inflation impact the decision to choose increasing term insurance?
Can the policy be cancelled if my needs change?
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Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
