Understanding Increasing Term Insurance Plan

Our financial status is constantly changing and varies according to our age and stage of life. In addition, the rate of inflation calls for a more significant level of coverage in later life. Here, an increasing term life insurance plan, with its low cost and ease of use, can play a critical role in protecting the future of our loved ones. With a single increasing term insurance policy, you can efficiently deal with these shifting dynamics. Let us learn more about the increasing term plans to get a better idea.

What is an Increasing Term Insurance Plan?

An increasing term insurance policy is one in which the sum assured, which is determined at the start of the policy, increases by a specified amount each year. It's the polar opposite of a decreasing term insurance policy. The premium rate may or may not remain constant during the course of the plan's life. However, the amount of coverage provided by the plan is contingent on the life assured's health at the time of purchase.

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

Since it is a term insurance plan, it has all the features of a standard term insurance plan along with some unique features. Here is the list of the vital features of an increasing term insurance plan, which differs from a regular term plan.

• Coverage

As previously noted, the sum assured grows each year. Some plans include a cap on the maximum increase in the sum assured, and the increase stops once the cap is reached, even if the plan is still active. In most cases, the increased sum insured amount cannot exceed twice the sum assured amount determined at policy start. The rate at which the sum assured grows could be stated as a percentage or an absolute number. In both circumstances, the rising rate is specified in advance and remains constant during the plan's duration. If the sum promised grows by a percentage, it can grow at a simple or compounded rate, albeit the former is more common.

• Death Benefits

Increasing term life insurance policies, like traditional term life insurance policies, pay just a death benefit. The sum assured applicable (after increase) at the beginning of the policy year in which the life assured died is the amount of the death benefit. While the majority of increasing term insurance plans give a lump sum reward upon death, there are a few newer plans that offer a monthly or annual income. 

• Premium

The insurer compensates for the growth in the sum assured while computing premiums in advance. Hence, even if the coverage rises every year, the plan's premiums usually stay the same for the course of the plan. Premiums paid in the early years are usually more than needed to compensate for lower premiums as the sum guaranteed grows. Furthermore, rates for an increasing term life insurance policy are greater than those for a standard level term insurance policy or a decreasing term life insurance policy. 

• Riders

At a small additional expense, policyholders can add riders to their increasing term insurance plan to expand the extent of coverage. Critical illness benefit riders, premium waiver riders, and accidental death and disability riders are the most popular riders to purchase in addition to the increasing sum assured alternative. 

What are the Benefits of an Increasing Term Insurance Plan?

Here are some of the benefits of an increasing term insurance plan. 

• Affordable

The most exemplary aspect of an increasing term insurance policy is how inexpensive and affordable the premiums are. Furthermore, even when coverage expands, premiums stay stable and do not put a strain on your wallet.

• Beat Inflation 

You won't have to worry about inflation if you invest in an increasing term plan as an increasing term insurance plan protects you from the additional costs that inflation imposes. Since the sum assured grows each year, an increasing term plan is an effective instrument against inflation, providing you with a cushion to help your family face rising financial costs.

• Achieve Future Goals

You have minimal or no duties when you're not married. As you start a family after marriage, your commitments increase. Hence, it would be best to prepare for your children’s future, repay your debts, accumulate assets, and establish a retirement fund. Your sum assured should grow in tandem with your financial needs. By continuously expanding your coverage over time, an increasing term life insurance plan assists you in fulfilling your increased financial responsibilities.

Endnotes

If you are young and expect your duties to grow in the future, an increasing term insurance policy is right for you. The plan would enhance the sum assured in the future to cover your rising commitments. Furthermore, an increasing term life insurance policy is the way to go if you want a plan that delivers a benefit that corresponds to economic inflation. Hence, it is wise to evaluate your requirements and select an increasing term insurance plan if it suits them. 

Also read 

What Is The Need To Purchase A Term Insurance Plan?

Term Insurance Riders and How They Benefit You

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.