About Increasing Term Insurance
An increasing term insurance plan, as the name implies, is a term insurance plan in which the sum assured decided at plan inception rises by a specified amount each year. It's the polar opposite of a declining term insurance policy.
An increasing term insurance plan guarantees that the sum assured grows by a predetermined amount each year. After taking inflation into consideration along with your increasing financial needs that may arise in the future, the sum assured is decided. With such a plan, you have the liberty to increase the sum assured at any point while the policy is still active.
Ideally, increasing term plans come in helpful when achieving financial goals for you and your family at various periods of life. For example, this plan allows you to increase the amount of term insurance coverage after significant life events (such as marriage, birth of a child, etc.).
The premium rate may or may not remain constant during the plan's life. However, the amount of coverage provided by the plan is determined by the health of the insured at the time of the purchase.
How Does Increasing Term Insurance Work?
To understand this, let us take the example of Devesh. Devesh, a 30-year-old guy, purchases an increasing term insurance plan with Rs. 30 lakh sum assured. He knows what he wants to achieve financially, but he also wants to make sure that his loved ones have enough to achieve their personal goals in the future. He has also calculated the amount of premium he'll have to pay each year to accomplish his target using an online term plan premium calculator.
Every year, the sum assured increases by 5% in this plan. If he purchases a term insurance plan on February 20, 2019, his sum assured on the next policy anniversary (February 20, 2020) will be Rs. 31.5 lakhs, and will continue to rise until it reaches the end of the policy period.
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What Are the Features of Increasing Term Insurance?
- Annual Increase in Coverage: As mentioned, the amount assured grows each year. Some plans include a cap on the maximum increase in the sum assured, and the increase stops once the cap is reached, even if the plan is still active. The rate at which the sum promised grows can be stated as a percentage or as an absolute number. In both the circumstances, the rate of rising is specified in advance and remains constant during the plan's duration. If the sum promised grows by a percentage, it can grow at a simple rate or a compounded rate, albeit the former is more common.
- Flexibility in Death Benefit Payout: Increasing term life insurance programmes, like traditional term life insurance plans, pay just a death benefit. The sum assured applicable (after increase) at the start of the policy year in which the life insured died is the amount of the death benefit. While the majority of rising term insurance plans give a lump sum reward upon death, there are a few newer plans that offer a monthly or annual income. After the insured's death, these plans pay the death benefit in a lump sum amount with a monthly, annual or entirely in monthly or annual payments for a defined period.
- Riders for Enhanced Coverage: Riders are optional coverage enhancements that expand the scope of coverage when selected. Riders can be added by paying a small additional fee. Most increasing term plans include certain popular riders.
- Accidental death and disability benefit rider- In the event of accidental death or disability during the plan's term, this rider pays an additional sum promised.
- Critical illness rider- If the insured suffers from any of the critical illnesses listed in the rider during the plan's term, the rider pays an additional sum promised.
- Waiver of premium rider- If the life insured dies in an accident or becomes disabled, this rider waives future premiums while the plan is still in effect.
- Comparable Premiums: Even if the coverage rises every year, the plan's premiums normally stay the same for the duration of the plan. The corporation compensates for the growth in the sum assured while computing premiums in advance, resulting in consistent premiums. Premiums paid in the early years are usually more than necessary to compensate for lower premiums as the sum guaranteed grows. Furthermore, rates for an expanding term insurance plan are greater than those for a standard level term insurance plan or a declining term insurance plan.
Why Should I Opt for Increasing Term Insurance?
There are several advantages of investing in an Increasing Term Insurance Plan. Some of these are:
- Effective anti-inflation strategy: We all know that inflation rises year after year. As a result, having an efficient insurance strategy against it is crucial. The additional expenses spent over the years are covered by the increasing sum assured under an increasing term insurance plan. That way, even if you're not around, your family will be adequately protected.
- Aligned to goals at various stages: The rising life cover will correspond with your life goals regardless of when you obtain the increasing term insurance policy.
- Affordability: The most economical life insurance policy on the market is an increasing term insurance plan. The insurers charge a standard premium amount, which eliminates the need for you to worry about fluctuations in your budget.
- Tax benefits: An Increasing Term Life plan, like any other term insurance plan, allows you to deduct premiums paid under Section 80C of the Internal Revenue Code. Furthermore, your beneficiaries will receive a tax-free death benefit. These tax advantages for term insurance help policyholders save money in the long run.
Increasing Term Insurance Versus Other Types of Term Insurance Policies
| Factors || Increasing Level Term || Decreasing Term Insurance || Standard Term Insurance |
| Sum assured || Sum assured increases at regular intervals || Sum aussured decreases over time || Sum assured remains constant throughout the policy term |
| Who should buy it? || Ideal for those who expect financial responsibilities to increase with time || Ideal for those who wish to cover debts/mortgages or expect their financial obligations to decrease with time || Ideal for those looking for regular source of income after the Life Assured's death |
Who Should Ideally Buy Increasing Term Insurance?
Young investors will benefit from the rising term insurance plan. Since you begin when you are young, your insurance coverage grows in tandem with your future responsibilities. Additionally, rising term insurance is exactly what you need if you're seeking a life insurance package that can protect you against economic inflation.
An increasing term insurance plan is an excellent approach to obtain financial security whether you have recently started working or if you are self-employed and own a business. This plan provides appropriate coverage to meet escalating financial demands as your obligations and liabilities grow in the future.
However, comparing term insurance policies is critical before deciding which policy to purchase.
Individuals who are young and expect their responsibilities to increase in the future should purchase increasing term insurance. Therefore, always compare the plans first and then choose the plan which best suits your requirements.