Increasing Term Insurance: Coverage That Expands With Your Needs

In India, there are many types of Term insurance, and each type has its own features and benefits. An increasing Term Plan is also one type of term Insurance where the amount of sum assured keeps on increasing year on year. Under this plan, financial coverage is provided to the family members of the insured in case of his sudden demise. These plans also take care of the future increasing costs altogether by either allowing a percentage increase or a fixed amount. Hence, assess your requirements and then choose the increasing term plan in case it matches your needs.

Features of Increasing Term Insurance

Provided below are the features of term insurance with increasing coverage:

Constant Premium Rates

This plan is an affordable way out to secure the financial future of your loved ones. Though the amount of the sum assured keeps on increasing every year, the premium amount is decided at the start of the plan and remains constant throughout the policy tenure.

Increasing Coverage

Under this plan, there is an increase in the amount of the sum assured every year. The rate of increase in the sum assured is pre-decided at the inception of the policy and remains constant throughout the policy tenure. In some cases, the companies cap the amount of the sum assured to a level beyond which it cannot be increased.

Flexible Death Benefit Payout

Under this plan, some companies offer the payment of death benefits as a fixed amount in the event of the death of the insured. On the contrary, some other companies offer to pay the death benefits on a monthly basis, increasing monthly or monthly + lump sum instalments.

Additional Riders

This plan offers flexibility, which means you can customise your plan by adding some riders and paying some extra premium to enhance the coverage of your policy. Examples of such riders are accidental death riders, critical illness riders, terminal illness riders, disability riders, etc.

How Does an Increasing Term Insurance Plan Work?

When we buy a new policy, the coverage amount at the initial stage remains constant, and the amount of the sum assured increases at a fixed rate, which ranges between 5% to 10%. This further increases the premium amount, hence providing increased financial security. The policy tenure ranges between 10 to 30 years. The longer the policy tenure is, the higher the premium rates. The death benefit also increases throughout the policy tenure, providing financial security to the family members.

Let us understand it with the help of an example:

Rahul, a 30-year-old Digital Market Manager from Bangalore, is the single breadwinner in the family, on whom his parents, spouse and children are dependent financially. Knowingly, he invests in a term plan to secure the financial future of his family in his absence. He opted for an increasing term insurance with a sum assured of INR 50 lacs for 30 years, with an annual increase of 5% in sum assured, with the premium to be constant.

The policy mentions that the sum assured can be increased up to a maximum of 100%. Hence, as can be seen above in the table, the sum assured has reached the amount of INR 1 crore, i.e. 100% of what was in the initial year, so it cannot be increased further. Now, understand further with the help of the below cases:

Case 1: If Rahul survives the 30-year policy period

As he survived the policy tenure, the policy will automatically terminate on maturity, and he will not get any maturity benefit as it is a pure term cover.

Case 2: If Rahul dies in the 5^th year of the policy

The sum assured in the 5^th year would be INR 60.77 lacs, which would be paid to his beneficiaries.

Case 3: If Rahul dies in the 27^th year of the policy

In this case, his nominees would receive INR 1 crore, the maximum amount of sum assured.

Increasing Term, Level Term, and Decreasing Term Plan – A Comparison

Let us now go through a comparison betweenIncreasing Term, Level Term, and Decreasing Term Plan:

Conclusion

The increasing term insurance plan should be bought by young individualswho expect their responsibilities to increase with the passage of time. Hence, compare all the plans available and choose the one that best suits your requirements.