It is always advised that while purchasing a term insurance plan one should go for an optimal level of sum assured as per their requirement. The level of sum assured amount an individual should choose depends on the various factors like income of the policy buyer, expenses schedule, liabilities, assets they have, and the short-term and long-term financial goals of life.
The financial situation of an individual varies from person to person and it changes with the life stages. As we grow old our responsibilities also increase thus the coverage you choose now n=might not be enough to fulfill the future financial liabilities of the family in your absence. In a situation like this, an increasing term insurance plan comes to the rescue. Let’s read further to know about the increasing term insurance plan in detail.
Under the increasing term insurance plan, the coverage amount chosen by the insured at the commencement of the policy increases every year at a specific amount. However, the premium rate of the policy might or might not be the same throughout the tenure of the policy increasing term insurance plan is just the opposite of the decreasing term insurance policy. In increasing the term insurance plan, the coverage allowed under the policy depends on the policy buyer's health at the time of purchasing the policy.
The increasing term insurance plans are specifically designed keeping in mind the changing circumstances of individual life and the increasing inflation rate. Along with the benefit of providing higher coverage to the family of the insured, there are many other features of increasing term insurance plan, which includes the following.
Even though the coverage of the increasing term insurance plan increases every year, the premium rate of the policy usually remains the same throughout the policy term. While computing the premium at the initiation of the policy, the insurance company accounts for the increase in the sum assured amount. So the premium of the policy remains uniform throughout the policy tenure. Generally, the premium paid in the starting years is higher as compared to the later years because a higher premium amount is required to compensate for the lower premium of the policy when the sum assured amount of the policy increases over time. However, it is important to note that the increasing term insurance plan charges a higher premium rate as compared to the level term insurance policy or decreasing term insurance plan.
As stated above, the sum assured amount of the policy increases per annum. However, in some of the increasing term insurance policies, there is a certain limit to the maximum raise of the sum assured amount. Once the sum assured amount reached the maximum limit it remains constant for the rest of the policy tenure. The rate of increase of the sum assured amount is stated as an absolute amount or as a percentage. In both cases, it remains constant for the policy tenure and is mentioned beforehand.
Similar to the pure term insurance plan, the increasing term insurance plan also offers an only death benefit. In case of the demise of the insured person during the policy tenure, a death benefit equal to the sum assured amount applicable is paid to the nominee of the policy. While most of the increasing term insurance plan provides the coverage amount as lump-sum on the death of the insured person. Some plans also offer annual and monthly income payout options. Under this option of payout, half of the death benefit amount is paid as lump-sum, while the rest of the amount is paid as an annual or monthly income for a specific tenure.
Riders are add-on coverage offered by the increasing term insurance policy to enhance the coverage of the policy. the most common type of rider benefits offered by the increasing term insurance plan are:
Let’s take a look at some of the advantages of purchasing an increasing term insurance policy.
The major advantage of purchasing an increasing term insurance policy is that it offers a low and affordable premium rate. Moreover, the premium of the policy also remains constant throughout the policy tenure and does not increase with the increase in the sum assured amount.
With the mushrooming rate of inflation, the coverage amount you purchase for your family now might not be enough to take care of the liabilities in the future in your absence. As the sum assured amount in increasing term insurance policy increases every year, it helps you to deal with the increasing inflation and provides you the right coverage to ensure the financial security of your loved ones.
Along with the benefit of providing financial security to your loved ones, the increasing term insurance policy also provides the advantage of tax saving. The premium paid towards the policy up to the maximum limit of Rs.1.5 lakh is eligible for tax exemption U/S 80C of the Income Tax Act.
With the increase in age, the financial responsibility of an individual also increases with time. As you grow old and get married, you have to plan for your kid’s financial future, pay off loans, create a retirement fund, accumulate wealth for the future, etc. With an increase in financial needs, the sum assured of the policy should also increase. The increasing term insurance plan helps you to fulfill the financial responsibility of your family even in your absence and help them to maintain a good lifestyle.
An increasing term insurance policy is best suitable for individuals who are young and expect their responsibilities to increase in the future. However, before making an informed decision make sure that you compare the plans and choose the plan which best suits your requirement.