Benefits of Increased Sum Assured Insurance Plan

An increased sum assured term insurance plan is beneficial compared to a traditional one because of the rising inflation every year. A Rupee of today might be ninety paise the following year. So, wouldn't it be nice that the sum assured of your term plan also increases with inflation rates, just like your salary hike? This would mean an increased life cover along with other benefits.  If you are confused about the meaning of an increased sum assured plan, this article is for you. From benefits to its working, you will know everything about this concept in this article.

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What is an Increased Sum Assured Plan?

Your responsibilities increase as you age. Your income, expenses, and liabilities increase over time. However, the life coverage you selected at plan start may not be sufficient.

An increasing term insurance plan is a unique policy where the sum assured increases every year by a fixed amount. This feature helps to keep inflation in check. So, you can sleep peacefully at night knowing that your family is protected at all times with appropriate life cover.

Working of a Term Insurance Plan with Increasing Payout

We can explain to you about a term Insurance policy with increasing payout all day. However, the best way to understand this plan is by a real-life example. So, mentioned below is a real-life case where the sum assured increments with time:

Let's say Rahul is 40 years old and purchases a term plan with incremented payout with a sum assured of Rupees 20 lakhs. The tenure is 30 years. The policy includes a 5% increment on the base sum assured (at the time of policy purchase). This increment is applicable every year and the maximum increase is 200% on the based sum assured amount.

Let's see how the increase in sum assured will happen over the next few years:

Tenure

SA as Applicable

1st Year

20 Lakh Rupees

2nd Year

21 Lakh Rupees

3rd Year

22 Lakh Rupees

4th Year

23 Lakh Rupees

5th Year

24 Lakh Rupees

6th Year

25 Lakh Rupees

7th Year

26 Lakh Rupees

8th Year

27 Lakh Rupees

9th Year

28 Lakh Rupees

10th Year

29 Lakh Rupees

11th Year

30 Lakh Rupees

12th Year

31 Lakh Rupees

13th Year

32 Lakh Rupees

14th Year

33 Lakh Rupees

15th Year

34 Lakh Rupees

16th Year

35 Lakh Rupees

17th Year

36 Lakh Rupees

18th Year

37 Lakh Rupees

19th Year

38 Lakh Rupees

20th Year

39 Lakh Rupees

21st-30th Year

40 Lakh Rupees

Note that there will be no increase in the sum assured amount from year 22 onwards. This is because the maximum permissible amount increase is Rupees 40 Lakhs which was reached at the end of year number 21. If Rahul, unfortunately, passes away during year number 15, his nominee would receive Rupees 34 Lakhs as a death benefit instead of Rupees 20 Lakhs during policy purchase.

However, if Rahul passes away any time after year number 21, the maximum permissible sum assured (Rupees 40 Lakhs) will be paid to the nominee.

Features of a Term Insurance Policy with Increasing Payout

  1. Premiums

    The coverage increments every year, but the premiums paid under the plan are usually constant throughout their tenure. Calculation of premiums is done in advance to account for the corresponding increase in sum assured. This ensures that premiums remain uniform.

    The premiums paid in the first years are usually higher than necessary to compensate for the increased sum assured. Note that the premiums for increasing term plans are higher compared to a decreasing or level term plan.

  2. Coverage

    As stated previously, the sum assured increases each year. Some plans have a maximum increase in the sum assured. The increment ceases after that limit, even if the plan tenure is continued. The sum assured increases as a specific percentage of an absolute amount. The percentage in sum assured increase is stated in advance and remains the same throughout the term.

  3. Benefits

    As with normal term life insurance, increasing term plans pay only a death benefit. The death benefit amount is the amount assured (after an increase) at the beginning of the policy year when the life insured died. Most increasing term insurance plans pay a lump-sum benefit upon death.

    However, some new plans offer a monthly income payout. These plans pay the death benefit in a combination of lump sums and monthly or annual incomes, or entirely in monthly incomes for a specific tenure following the insured's death.

  4. Riders

    These are add-ons to an existing policy to enhance its benefits. Riders are available for an extra small premium. Common riders available on many increasing sum assured policies include:

    • Waiver of premium rider: Under this rider eliminates future premiums, but the plan will continue if the life insurance policyholder is disabled or dies due to an accident.
    • Critical illness rider: This rider covers the additional amount if the life insurance policyholder is diagnosed with any critical illnesses listed in the policy contract.
    • Accidental death and disability rider: This rider provides additional protection in the event of death or disability during the plan's tenure.

Benefits of a Term Plan with Increased Sum Assured

When you decide to purchase a term policy with increasing payouts, you get the below-mentioned benefits:

  1. Meets Your Family's Monetary Needs

    You have very few responsibilities if you're not married. However, your responsibilities increase as you start a family after marriage. You need to plan for your child's school and college fees, your retirement, your debts, and your assets. 

    In such a case, your sum assured should increase as your financial obligations grow. An increasing term policy that increases the sum assured over time can help you meet your family's financial requirements over time.

  2. Keeps Up with Inflation Rates

    You need a life cover that keeps up with inflation as it continues to rise slowly but steadily each year. A term insurance plan that increases in sum assured value each year is an excellent way to protect your family from the heat of rising expenses. It will also give you peace of mind that you have covered all the bases for your family.

  3. Tax Benefits

    An increasing term policy also helps you save taxes, similar to a decreasing or level term plan. You can save taxes on the premiums you pay, up to Rupees 1.5 lakhs per financial year. The death benefit under the plan is also exempt from tax. Also, the plan does not have a limit on how much tax-free benefits you can have.

  4. Justified Rates

    The best aspect about an increasing term plan is that the premium rates are justified. Even though coverage increases over time, the premiums remain the same and don't put too much strain on your pocket.

When to Choose a Term Insurance Policy with Increasing Payout?

If you're young and anticipate your responsibilities will increase in the coming years, an increasing term plan might be ideal. You would get more coverage to cover your future obligations as you age. So, evaluate your needs, employment, and family requirements. If you think an increasing term plan could benefit your family, why think twice before buying it?

Next, you may wonder if any plan providers in India offer the increasing term plan. Yes, there are many! Below is a list of some of the insurers who offer an increasing term plan:

Plan Name

Maximum Permissible SA

Percentage Increment in the SA Amount

Unique Features

SBI Life eShield Plan

Rs.20 lakhs and above

10% simple rate of increase in the sum assured after every 5 policy years

2 Plan choices plus Accidental Death Benefit

Birla Sun Life Protector Plus Plan

Rs.30 lakhs and above

5% or 10% simple rate of increase in the sum assured at the start of every year

A complementary Permanent & Total Disability Benefit can be availed

You can avail of death benefits in equal amounts.

There are multiple riders to expand the coverage scope.

SBI Life Smart Shield

Rs.25 lakhs and above

5% simple rate of increase in the sum assured at the start of every year

Justified premiums + great discounts

Three elective riders for increased protection

Birla Sun Life Insurance Protect @ Ease

Rs.30 lakhs and above

5% or 10% simple rate of increase in the sum assured at the start of every year

You can increase the SA during childbirth and marriage.

Multiple riders to expand the coverage scope.

You can avail of this plan on a joint-life basis.

Disclaimer: Policybazaar does not endorse, rate, or recommend any particular insurer or insurance product offered by an insurer.

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C apply.

The Correct Way to Purchase an Increasing Term Plan

Online purchase of an increasing term plan can be made through the websites of different insurance companies. Note that to purchase this term policy, you must be at least 18 years old and not older than 60.

Moreover, your Insurer will require you to provide your KYC and any other documentation required to purchase this policy. Also, the surrender and maturity benefits are subject to policies terms and conditions.

Final Word

Inflation rises every year, so do your family's financial requirements. You don't want to compromise on their risk cover. So, make an informed decision by buying an increasing term plan that will provide apt risk protection against uncertainties in the future.

Written By: PolicyBazaar
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