Term insurance is a pure and simple life insurance product. When purchasing the plan, various factors are taken into consideration such as liabilities, assets, incurred expenses, future financial obligations, and current income. Keeping all these points in mind, you have to purchase a term insurance policy with a SA amount that helps you achieve your financial objectives and manage the expenses as well.Read more
The financial goals changes with age. Your financial needs may increase with the increasing lifestyle and medical expenses. So how will you take care of all these varying dynamics with fixed-term plan coverage? This is where an incremental term life insurance policy comes to the rescue.
An incremental term insurance policy is a form of term insurance in which the life assured can increase or enhance the policy life cover by a fixed amount every year. The increase is done after adjusting the rate of inflation and your financial objectives at the given time.
For instance, if you buy Rs. 1 Crore policy for a tenure of 20 years, then for every year after you purchase the policy, the sum assured of Rs. 1 crore would increase incrementally by a specific percentage amount that is decided in advance. This simply means that at the end of 10 years, if something unfortunate happens to you, your loved ones will receive Rs. 1 crore and an amount that incrementally increased over the past 10 years.
The sum assured amount offered by a basic term insurance plan may denigrate over the years and your family might find that value inadequate. So the incremental term life insurance policy can be of high importance to beat inflation and make sure that your family will have sufficient funds to lead their lives happily.
Let’s understand this with the help of an example: X purchased an incremental term insurance plan at 31 years of age. The sum assured X decided to avail is Rs. 20 Lakhs for a policy term of 30 years. The plan provides a 5 percent rate of increase in SA amount every year up to a maximum increase of 100 percent of the chosen SA amount.
The below table illustrates the sum assured increase during the policy term:
|Year of policy||Sum Assured||Year of Policy||Sum Assured|
|1st||20 Lakh||11th||30 Lakh|
|2nd||21 Lakh||12th||31 Lakh|
|3rd||22 Lakh||13th||32 Lakh|
|4th||23 Lakh||14th||33 Lakh|
|5th||24 Lakh||15th||34 Lakh|
|6th||25 Lakh||16th||35 Lakh|
|7th||26 Lakh||17th||36 Lakh|
|8th||27 Lakh||18th||37 Lakh|
|9th||28 Lakh||19th||38 Lakh|
|10th||29 Lakh||20th||39 L|
From 21 years to 30 years of the policy, the SA amount remains Rs. 40 Lakhs as the maximum amount of increases allowed in the SA is done in the 21st policy year. So if X passes away during the 17th year of the policy, the insurance company will pay Rs. 36 Lakhs to the nominees. In case X dies after the plan completion of 20 years, the company will pay Rs. 40 Lakhs to the nominees.
Following are the advantages of an Incremental Term life insurance policy:
Purchasing an incremental term life insurance policy is very cost-effective because the premium remains constant during the policy term when the policy is in force and will not put extra pressure on your pocket.
The life cover amount selected for yourself may not be adequate for your family to fulfill their long-term requirements. An incremental term life insurance plan makes sure that inflation does not become a difficulty and saves your family members from additional expenses that come with inflation. As your SA increases annually, it protects you from inflation and ensures that you have sufficient money to take care of the requirements even in your absence.
Regardless of when you buy the incremental term insurance, the increasing life cover will align with your life objectives.
Premium rates remain the same throughout the policy term or increase every year depending on the policy’s T&Cs. However, to compensate for an increase in sum assured over time, the premium amount charged during the 1st few years is more than that charged during the other half of the policy tenure.
Incremental term life insurance plans pay death benefits to the policyholder’s nominee. The death benefit payable to the dependents is the sum assured amount computed after the increase during the year of policy in which the policyholder died. Most insurers pay a lump sum amount as death benefits while there are others such as monthly or annual income payout. This means that the nominee can select to avail of death benefits or sum assured amount as a lump sum or an annual/monthly income for a pre-decided period after the policyholder’s demise.
Incremental term insurance plans come with add-ons or rider advantages. This means that you can easily increase the coverage of your base plan by choosing the right rider and paying a small amount for them. The premium amounts are minimal to opt for riders. Some of the common riders are available with increasing term insurance policies such as:
Critical Illness Rider: If you suffer from any disease mentioned under the list of critical illnesses and covered by the rider during the policy term, then you receive an additional amount of SA as rider benefits.
Accidental Death and Disability Rider Benefit: Opting for this rider at added premium amount allows the benefit of an additional sum assured amount to the nominee in case of accidental death or disability of the policyholder during the policy term.
Waiver of premium: In case of any disability because of an accident, the insurer waives off all the future premium amounts while the plan continues
Get tax savings benefit on the premium amount paid under section 80C of the Income Tax Act, 1961. Moreover, the death payouts are exempted from tax deduction u/s 10(10D) of ITA.
The rate of inflation increases each year with the rate of your income growing yearly. With passing time, you are burdened with additional responsibilities such as children’s expenses, home loans, creation of assets, etc. As the sum assured amount in incremental term insurance rises every year by a specific rate, your nominee is assured of a value that can take care of their daily expenses and it also acts as an effective tool against the increasing rates of inflation. Moreover, having an increasing term life insurance policy is equivalent to forming a secure financial future at low premium rates.
The incremental term insurance policy is ideal for young individuals. If you start early, the life coverage increases along with your responsibilities in the future.
Incremental term life insurance policies have unique benefits. You should buy an incremental term life insurance plan if you think your responsibilities will grow with your age. It is also advisable to purchase this plan at early age. So, if you are planning to purchase term insurance, ensure that you opt for increasing term insurance to completely secure your family’s future.
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