Know All About Increasing Term Insurance Plans

Even if you're no longer alive, life insurance can help safeguard your family financially. When you die, your life insurance company pays your family a lump payment that they can use to cover day-to-day expenditures, burial fees, outstanding debt, or whatever else they require. Term life insurance programmes protect you for a specific amount of time, usually 10 to 30 years. The majority of term policies are level term, which means your premiums, or payments, and death benefit remain the same from year to year. However, you may require a coverage alternative that can expand over time to meet your changing financial needs in some situations. With its low cost and ease of use, an increasing term life insurance plan is a good option. 

What are Increasing Term Insurance Plans?

In an increasing term insurance policy, the sum assured is determined at the start of the policy and increases by a specified amount each year. As time passes, this form of insurance can give further protection to cover expanding needs, such as a new house or a larger family, or to safeguard your death benefit from inflation. Moreover, it must be noted that your payments will almost certainly rise in tandem with your death benefit. 

What are the Key Features of an Increasing Term Insurance Plan?

It has all of the features of a typical term insurance plan, as well as some special features, because it is a term insurance plan. The following is a list of the key characteristics of an increasing term insurance plan.

• Coverage

The amount assured grows every year, as previously stated. Even though the plan is still operational, certain plans have a cap on the maximum increase in the sum insured, and the increase stops once the cap is reached. The increased sum insured amount cannot, in most situations, exceed double the sum assured amount specified at policy inception. The growth rate of the sum assured can be expressed as a percentage or as an absolute quantity. The growing rate is defined in advance in both cases and remains consistent during the plan's lifespan. If the promised sum increases by a percentage, it can increase at a simple or compounded pace, though the former is more usual.

Must read: What Is Meant By Increasing Term Insurance Benefits?    

• Death Benefits

Increasing term life insurance products pay only a death payout, much like regular term life insurance policies. The death benefit is equal to the sum assured applicable (after increase) at the start of the policy year in which the life assured died. While most increasing term insurance plans provide a single sum payment at death, a few newer plans provide a monthly or annual income. 

• Premium

When calculating premiums in advance, the insurer accounts for the increase in the sum assured. As a result, even if the coverage increases every year, the plan's premiums normally remain constant over time. Early premiums are frequently higher than necessary to compensate for low premiums as the sum guaranteed develops. In addition, the premiums for increasing term insurance plans are higher than those for a basic level term insurance plan or a decreasing term insurance plan.

• Riders

Policyholders can add riders to their increasing term insurance plan for a nominal additional fee to increase the scope of coverage.  In addition to the growing sum assured option, critical illness benefit riders, waiver of premium riders, and accidental death and disability riders are the most popular riders to purchase.

What are the Advantages of an Increasing Term Insurance Plan?

Some of the advantages of an increasing term insurance plan are listed below.

• Affordability

The most outstanding feature of an increasing term insurance policy is the low and affordable rates. Furthermore, premiums remain consistent and do not put a strain on your wallet as coverage expands.

• Beat Inflation 

If you invest in an increasing term plan, you won't have to worry about inflation because an increasing term plan shields you from the additional costs that inflation imposes. An increasing term plan is a good tool against inflation because the sum assured grows each year, giving you a cushion to help your family cope with escalating financial demands.

• Achieve Future Goals

When you're not married, you have few or no responsibilities. Your commitments grow as you start a family after marriage. As a result, it's important to plan for your children's future, pay off debts, accumulate assets, and set up a retirement fund. Your sum assured should increase in proportion to your financial need. An increasing term life insurance plan assists you in meeting your increased financial commitments by gradually expanding your coverage over time.

Endnotes

An increasing term insurance policy is ideal for you if you are young and expect your responsibilities to grow in the future. The plan would increase the amount guaranteed in the future to cover your growing obligations. Furthermore, if you want a plan that provides a benefit that increases in line with inflation, an increasing term life insurance policy is the right choice. As a result, it's a good idea to assess your needs and get a suitable increasing term insurance plan. 

Also read: Avoid These Crucial Mistakes Before Purchasing a Term Insurance Plan

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.