Increasing Term Insurance Plan

The primary reason why people opt for term insurance plans is to provide financial security to their loved ones in their absence. It helps your family to meet their life aspirations irrespective of any unforeseen event.

A term plan is an affordable and simple life insurance product. When buying the policy, several factors are taken into consideration, such as your current income, expenses incurred, liabilities, assets, and future financial objectives. Keeping these in mind, you have to buy a term insurance plan with a sum assured amount that helps you accomplish your financial goals and manage the expenses incurred alongside.

The financial objectives tend to change as you grow older. Your financial needs may increase with the rising comfortable lifestyle and medical expenses. So, how can you take care of these changing dynamics with fixed term insurance coverage? Well, this is where an increasing term insurance plan comes in handy.

What is an Increasing Term Insurance Plan?

An increasing term insurance plan ensures that the sum assured increases annually by a predetermined amount. The increase is done after adjusting inflation and your financial goals at the given time. With the increasing term insurance plan, you (the policyholder) have the liberty to increase the sum assured amount during the tenure. Also, the premiums of the policy may or may not change depending on your insurer.

Ideally, increasing term plans come in handy when accomplishing yours and your family’s financial objectives at different life stages. For instance, this plan allows you to increase the term insurance coverage amount during important milestones of your life (such as marriage, the birth of your child, child’s education, etc.). Here, you can increase a certain percentage of the sum assured amount to meet your rising/changing financial demands and responsibilities.

How an Increasing Term Insurance Plan Works?

Consider the following example to understand the working of an increasing term insurance plan.

Illustration on an Increasing Term Insurance Plan:

Ms Preeti bought an increasing term insurance plan at the age of 31 years old. The sum assured amount she decided to opt for is INR 20 Lakhs for a policy tenure of 30 years. The plan offers a 5% rate of increase in the sum assured amount every year up to a maximum increase of 100% of the chosen sum assured amount.

The following table depicts the increase of the sum assured amount during the policy tenure:

Policy Year

Sum Assured Amount

Policy Year

Sum Assured Amount

Year 1

INR 20 lakh

Year 11

INR 30 lakh

Year 2

INR 21 lakh

Year 12

INR 31 lakh

Year 3

INR 22 lakh

Year 13

INR 32 lakh

Year 4

INR 23 lakh

Year 14

INR 33 lakh

Year 5

INR 24 lakh

Year 15

INR 34 lakh

Year 6

INR 25 lakh

Year 16

INR 35 lakh

Year 7

INR 26 lakh

Year 17

INR 36 lakh

Year 8

INR 27 lakh

Year 18

INR 37 lakh

Year 9

INR 28 lakh

Year 19

INR 38 lakh

Year 10

INR 29 lakh

Year 20

INR 39 lakh

From policy year 21 to 30, the sum assured amount remains INR 40 Lakhs as the maximum increase allowed in the sum assured is achieved at the 21st year itself. So, in case Preeti dies during the17th policy year, the insurer will pay INR 36 Lakhs to the beneficiaries. In case she dies after the policy finishes 20 years, the insurer will pay INR 40 Lakhs to the beneficiaries.

Advantages of Increasing Term Insurance Plan

The benefits of an increasing term insurance plan are as follows –

  • Effective against inflation: We all know that inflation increases gradually every year. Hence, it is essential to have an insurance plan that is effective against it. With an increasing term insurance plan, the additional expenses incurred along the years are taken care of by the rising sum assured. That way, your family will be well protected in the future, even in your absence.
  • Aligned with your financial goals at different life stages: Irrespective of when you purchase the increasing term insurance plan, the increasing life cover will align with your life goals.
  • Affordable: An increasing term insurance plan is the most affordable life insurance product in the market. Most insurers charge the same premium amount throughout the policy tenure, so it does not put a strain on your finances over time.
  • Tax saving: Much like any other term insurance plan, an increasing term life plan allows you to claim deductions on the premiums paid under Section 80C of the Income Tax Act. Also, the death benefit received by your beneficiaries is tax-free. Such term insurance tax benefits help the policyholder to save money in the long run.

When to Opt For an Increasing Term Life Insurance Plan

The increasing term insurance plan is ideal for young investors. Since you start young, the policy coverage increases along with your responsibilities in the future. Also, if you are looking for a life insurance product that is effective against economic inflation, increasing term insurance is just what you need.

Is An Increasing Term Plan For You?

In case you have just started earning or are self-employed and own a business, an increasing term insurance plan is an ideal way to achieve financial security. As your responsibilities and liabilities in the future are bound to increase, this plan offers adequate coverage to meet the rising financial demands. However, term insurance comparison is very important before you decide which policy to buy.

To Sum It Up!

Although term insurance plans are mainly popular for the death benefit it offers, there is a lot more. You can opt for rider benefits in term plans to enhance the coverage of the policy. Rider covers such as the return of premium cover, critical illness cover, waiver of premium cover, accidental death cover, and more. 

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