An increasing term insurance plan, as its name implies, is a term insurance plan in which the sum assured selected at the start of the plan rises by a specific amount each year. Similar to the decreasing term insurance plan, it is the exact opposite.
Depending on the length of the plan, the premium rate may or may not stay constant. However, the amount of coverage permitted by the plan is based on the insured’s health at the time the policy was purchased.
Increasing term insurance is frequently created with inflation and other constantly changing life situations in mind.
Although this is the most straightforward meaning of term insurance, the plan actually contains a number of aspects, some of which are as follows:
- Coverage
As was already said, the sum assured grows yearly. Some plans have a maximum increase in the sum assured that can be made before the increment stops, even when the plan’s tenure is still in effect. Although a simple rate is typically the norm, if the total assured increases by a percentage, the increase could also occur at a compounded rate.
- Premiums
Even if the amount of coverage grows yearly, the plan’s premiums often stay the same during the course of the arrangement. The corporation calculates the premiums in advance while taking the increased sum assured into account, resulting in uniform premiums. In order to make up for the reduced premiums that are paid as the sum assured rises over time, initial premium payments are typically larger than necessary.
- Benefit
Increased term plans pay just a death benefit, similar to traditional term life insurance plans. The sum assured applicable (after increase) at the beginning of the policy year in which the life insured passed away is the death benefit amount. While the majority of rising term insurance plans pay a lump sum benefit upon passing away, several recently introduced plans offer a monthly or annual income payout.
- Riders
Riders are optional extra coverage features that broaden the range of coverage. The taking of passengers is possible for a small additional fee. The Accidental passing away and Disability Benefit Rider, which pays an additional sum promised in event of accidental passing away or disability sustained during the plan tenure, is one of the prominent riders included in the majority of growing term policies.
- Critical illness rider
If the life insured contracts one of the listed critical illnesses during the term of the plan, the rider will pay an additional sum assured.
- Waiver of premium rider: If the life insured has an unavoidable accident passing away or disability, this rider waives all future premium payments while the plan is still in effect.
Advantages of increasing term insurance plan
- Does it work against inflation
You need insurance that outperforms inflation because it rises gradually but steadily each year. You can protect yourself from the additional costs that inflation brings about with an increasing term insurance plan. A growing term plan is a powerful tool against inflation and provides you with a cover that enables your family to cope with the rising costs. The sum assured rises annually.
- Helps in meeting increased financial requirements
Your responsibilities increase as your family grows after marriage. You must make plans for your children, loan repayment, asset creation, and retirement savings. Your sum assured should expand as your financial needs do. By continuously increasing your coverage over time, an increasing term life insurance plan assists you in managing your growing financial obligations.
- Is it reasonable
The reasonable premiums of increasing term insurance plans are their strongest feature. Furthermore, even as the coverage expands, premiums stay the same and are not burdensome on your finances.
- Reduces taxes
Yes, an increasing term insurance plan helps you save taxes, just like other life insurance policies. Up to Rs. 1.5 lakhs in one fiscal year, the premiums you pay for the plan are tax-free. You won’t pay taxes on the death benefit you get from the plan, either. Furthermore, the term insurance tax benefit obtained under the scheme has no upper limit.
* Currently, there are 2 tax regimes in India – new and old. To get the tax benefit you desire, choose the correct one after consulting an expert. You can opt for a regime change during the next financial year.
When to choose a term life insurance plan with increasing benefits
If you are young and anticipate a rise in your duties in the future, understanding the meaning of term insurance is appropriate for you. The plan would raise the amount guaranteed to cover your rising obligations in the future.
Moreover, a growing term life insurance plan is your best option if you want a plan that pays a benefit that keeps up with economic inflation it also offers a term insurance tax benefit. So evaluate your requirements and, if appropriate, select an increasing term insurance plan.
