People opt for a term insurance plan, as it ensures the financial safety of their loved ones in their absence. If you are considering buying one, then first find out about the different choices it offers, especially the increasing term insurance plan.
What is term insurance?
The term insurance meaning is a life insurance policy that you can buy for a fixed period. It pays only in case of the policyholder’s untimely passing during the plan’s tenure. The policy offers a high lump-sum return at a modest premium. The term plan coverage you need depends on your regular income, daily expenses, future financial commitments, and other liabilities. Its main purpose is to provide financial cover to the nominees in case of your absence.
However, one challenge with a general term plan is that the cover might not be enough for your family, as with time, the expenses will only rise. This is where an increasing term insurance policy can be an asset.
What is an increasing term insurance policy?
It is a term plan wherein the sum assured rises every year. You can decide the amount of increase during the initiation of the policy. You can increase thesum, depending on the change in financial needs and inflation. The premium may or may not change, depending on your insurer.
The flexibility of the increasing term insurance plan works in your favour. It gives you the freedom to raise the sum assured even by a certain percentage when your responsibilities increase. For example, if you marry and eventually, have children, you will need a larger cover to secure your family’s future. The financial goal of the family changes with time too. You can take care of all these aspects when you have the option to increase your coverage. You can use a term plan premium calculator to determine the cost and monetary benefit of a plan before purchasing it.
Features of an increasing term insurance plan
The increment in the coverage can be a fixed amount or a percentage of the sum assured. Some insurers allow the cover to increase only to a certain limit.
The premium may change yearly; however, many insurers offer a fixed amount. The insurance provider calculates this cost during the commencement of the policy. Generally, it is higher as compared to a regular term plan.
- Sum assured
Like a normal term plan, even an increasing term policy only pays the cover in case of the policyholder passes before the end of the policy tenure. After the insurer approves your nominees’ claim, they receive the sum assured either as a lump sum or as periodic pay-outs, depending on your agreement with the provider.
Benefits of an increasing term insurance plan
The increasing term insurance plan has multiple advantages. Here is a list of the most prominent ones.
- Safeguards against inflation
Inflation can be a huge challenge, as it keeps rising every year. Hence, when you are planning to protect the financial needs of your family in your absence, you need to find a way to tackle inflation. An increasing term plan can help in this scenario, as the cover will keep increasing along with inflation.
- Meets your changing financial needs
As your family grows and you get older, your financial goals will change.The increasing term plan can cover that.
- Comes at an economical cost
An increasing term insurance policy is an affordable option. Most insurance providers keep the same premium even when the cover increases.
- Offers tax benefits
The term insurance tax benefit allows you to claim a deduction of up to INR 1.5 lakh annually on the premium that you pay. This facility is also available with an increasing term plan.
When should you buy one?
If you are a young individual with a regular source of income, the increasing term insurance policy can prove suitable for you. With time, your expenses will rise, and you will have more financial liabilities. An increasing term policy will have you covered during these circumstances.