What is meant by Increasing Term Life Insurance Policy?
“Life insurance policies secure your family financially, even in your absence.”
In case of your untimely demise, your family gets a lump-sum amount from the insurance company which they can use to manage their daily expense, any outstanding debts or to tackle some other costs.
When you plan to buy term life insurance online, you should be thoroughly aware of it. Term policies provide coverage for a specific duration, which is ideally 10 to 30 years. However, you should select the coverage amount based on your requirements which should include your responsibilities, pending liabilities, financial objectives along with your income and expenses schedule.
Majority of the term life insurances are level term policies, which refers to the fact that your premiums and death benefit remain the same year after year. But your financial status or needs does not stay the same forever.
Hence, you require an alternative to it wherein your insurance coverage amount increases from time to time to suffice your growing financial needs. In such situations, evaluating the right sum assured amount becomes difficult when you buy term life insurance online. Hence, the increasing term life insurance policy comes for your rescue.
What is an increasing term life insurance policy?
In increasing term life insurance policy, the amount of insurance coverage increases every year by a fixed amount over the tenure of the policy. This form of term life insurance is great to keep up with your growing expenses such as a new house, when the family expands or other financial goals or even against the increasing inflation rate. This kind of term policy is beneficial for your future purposes based on different life stages.
For example, during your various milestones of life like marriage, children, child’s education and others, you can increase your policy sum assured. But you have to remember that your premium payments might change or remain constant throughout the policy duration. An increasing term policy can cost you more than a level term plan as with time you get a larger payout.
Let’s take an example to understand its working. Sunil has purchased a term life insurance with coverage of Rs 40 lakhs. He has also used online term insurance calculator to determine the premium amount that he has to pay based on his objectives. Under this policy, the coverage amount increases by 5 percent every year.
So, if he has bought the policy this year, then in the next year the sum assured will be Rs 4.2 lakhs. It will keep on increasing until it becomes double the sum assured (80 lakhs) since the commencement of the policy. However, the term of the policy should be long enough so that the coverage amount could become double the original one.
So, this is how the increasing term life insurance policy works. But there are also several other features and benefits in this type of term policy that you should know.
- Increase in insurance coverage: The increase in sum assured is either evaluated as a percentage of the original coverage amount or a fixed amount. The rate of increase is decided at the beginning of the policy and cannot be changed during the term of the policy. Typically, the increased coverage amount cannot cross twice the original sum assured that had been decided at the time of policy inception. So, considering the above example, the sum assured is Rs 40 lakhs and hence it can’t go above Rs 80 lakhs.
- Cost of premiums: With the rise in sum assured every year in increasing term life insurance policy, your premium cost might increase as well, which depends on the insurance company. Generally, the premiums remain the same in this term policy. But some insurers charge higher premiums as compare to the regular term plans.
- Riders: In an increasing term insurance policy, riders can be added at a nominal cost to enhance its coverage. The most preferred riders are waiver of premium rider, critical illness rider, accidental death and disability riders.
Advantages of Increasing Term Insurance Policy
- Helps in achieving future financial goals: An increasing term policy helps planning robust financial objectives as it considers the growing expenses, inflation rate and change in the future goals. It ensures that your loved ones don’t have to compromise with the lifestyle in your absence.
- Manages inflation: With the increasing cost of living because of the inflation, the return of some investments is not able to match the expenses. Therefore, an increasing term policy act as a useful tool against inflation, that helps your family to meet their growing expenses.
- Saves Taxes: Like other insurance policies, the premiums paid for the increasing term life insurance policy are eligible for tax deduction up to a limit of Rs 1.5 lakhs in one financial year. The death benefit given to the dependents of the policyholder is also tax-free.
- Affordable: Increasing term policies are considerably affordable as compared to other life insurance policies and thus fits into people’s budget.
Is it the right bet for you?
If you want your policy sum assured to cover your increasing expenses, then it could be an ideal option for you. Also, in long-term coverage, inflation is always a concern, and an increasing term life insurance supports you to plan for growing responsibilities and liabilities in advance while beating inflation. Though it may be more expensive than your level term plan; therefore, if you don’t think that your requirement would increase in future, then it could not be a good bet for you.
How is increasing term plans differs from the other form of term life insurance?
The significant difference lies in the death benefit that the policy beneficiary receives on the demise of the policyholder. In level term insurance plans, the death benefit and the premiums remain constant throughout the tenure of the policy, whereas in increasing term insurance, the payout grows with time.
Therefore, when you decide to buy term life insurance policy online, it is essential that you carefully think through the insurance coverage amount for the betterment of your family’s future. If you expect that your liabilities and responsibilities would increase in future for which you might require more funds, then you should opt for an increasing term life insurance policy.
But if you think that you can control your expenses and they won’t rise, then you probably can avoid as its premiums are more expensive than the regular term plans. If you have some more queries and looking for clarity on the same, then you can visit BimaKaro.in and speak to their insurance experts.