Term insurance cover is supposed to provide financial protection to you and your family in case of uncertainties related to life. The responsibility of an individual’s life changes continuously, and so does the financial obligations too. Thus, it is worth reviewing the coverage of the term insurance policy if you think that your situation has changed from the time you purchased the term insurance plan. As a breadwinner of the family, you will not want your family to go through any financial crisis in case of any eventuality. Moreover, you will want them to maintain a good lifestyle even in your absence.
To ensure that you provide the right financial protection to your family from time to time, you can consider increasing the coverage of term insurance plans at specific intervals of time. Most of the term insurance policies offer the features of life-stage protection, which provides you an option to increase coverage of term insurance plan at different milestones of life, without any medical tests.
Let’s read further to know how to increase coverage of the term insurance plan and is it worth it or not.
The feature of life-stage protection of term insurance plan provides an option to increase the sum assured amount by a specific percentage of existing cover at two major milestones in your life. First at marriage and second at childbirth (up to two children).
For instance, if you purchase a term cover of Rs.1.crore before marriage then you can increase the coverage by 50% i.e. up to Rs.50 lakh on marriage, and then by 25% i.e Rs.25 lakh each on the first and second arrival of the child.
|Purchasing Additional Term Plan||Choosing Life-stage Protection Features|
|Medical Test||Required||Not required|
|Flexibility||High||Poor (have to stick with the same insurance provider and its terms and conditions)|
|Policy Issuance||Takes time||Faster|
|Future Premiums||Can be lower as the mortality rates have decreased over the years||A possible lower premium, but not to a great extent.|
Once you decide the need for extra insurance cover, the next step is to evaluate how much additional coverage you need, which will help you to fulfill your financial obligations from time to time. To analyze the right coverage amount jot down your current financial obligation and also add the future obligations to it like a child’s higher education, repayment of the loan, emergency fund, etc. Also, keep in mind the future rate of inflation. By considering all these important factors you will be able to evaluate the additional coverage that will fulfill your requirements.
Some of the term insurance policies have a cap on the sum assured amount which you can increase. However, the premium rate of the policy will also increase as it will be recalculated as per the increasing age remaining policy tenure and higher sum assured. You can opt for the option of life-stage protection within six months of the occurrence of the event or at the agreed cut off age. It is important to keep in mind that this feature is only available under the life cover option and not on the riders. The life-stage protection plan is limited to a pure term policy with the option of life cover. The advantage of having life-stage protection is that the increased coverage can be availed without any medical test.
If you purchase a separate cover, you will need to go through the process of documentation and medicals, which might add up to the premium rate due to a new medical condition. On contrary to this, in the option of life-stage protection, the medical test or documentation is not required and the premium rate is recalculated only on basis of the age.
As per the market experts, the plain vanilla regular term policy with no add-ons works better. Ostensibly, Rs.1 crore term cover with no option of increasing life cover is inexpensive. This is because in pure term plan the premium gets fixed for the entire tenure at an early age. Whereas, in the life-stage option the increasing cover results to be the costliest option.
If you are young, have fewer responsibilities to take care of and if you are looking for a hassle-free process later in various stages of life then you can choose this option. Specifically, if you don’t want to have a higher sum assured at the beginning of the policy purchase. However, you can skip the option of life-stage protection and purchase an additional term plan based on the different stages of life. Based on the assessment of responsibilities carried out once every three years, you should take a suitable further cover.