Incremental term insurance or increasing term insurance is a variant of term life insurance where the assured sum grows annually at a fixed rate. In the unfortunate event of the policyholder's demise within the policy term, the nominated beneficiaries receive the sum assured. These plans enable you to guarantee that your term life coverage aligns with your expanding financial requirements. Within these term insurance schemes, the coverage amount selected by the policyholder at the initiation of the policy rises annually by a set amount. Nevertheless, the premium rate for the policy may vary or remain constant over the policy's duration. In the context of term insurance featuring an expanding cover, the approved sum assured is contingent upon the policyholder's health at the policy's commencement. These plans are tailored to address the evolving requirements of individuals and address the impact of increasing inflation.
According to Rishabh Garg, head - of term insurance, Policybazaar.com, to address inflation and economic changes insurers are offering increasing term life insurance plans. “These plans guarantee a gradual increase in the coverage amount throughout the policy tenure, be it yearly or specified periods. Under this plan, the coverage amount progressively increases to adapt to the rising cost of living. By doing so, the plan ensures that your term life cover is sufficient to cover your increasing financial needs as your lifestyle evolves. While the death benefit grows over time, increasing term life insurance plans often offer a more cost-effective choice in comparison to various permanent life insurance alternatives,” Garg said.
Insurers such as HDFC Life, Max Life Insurance, SBI Life, and Canara-HSBC provide increasing term insurance plans with plan names C2PS, Smart Secure Plus, eShield Next, and Young Term Plan Life Secure- Increasing, respectively.
Yearly Expansion of Coverage: As previously explained, the assured amount increases annually. Certain plans impose a limit on the maximum augmentation in the sum assured, and once this limit is reached, the increase halts, irrespective of the ongoing viability of the plan. The pace at which the promised sum increases can be expressed as a percentage or as a fixed number. In either scenario, the escalation rate is predetermined and remains steady throughout the plan's duration. When the sum assured grows by a percentage, it can do so at a simple or compounded rate, with the former being more prevalent.
Versatility In Death Benefit Disbursement: Similar to conventional term life insurance schemes, increasing term life insurance programs solely provide a death benefit. The death benefit amount is determined by the sum assured (after augmentation) at the commencement of the policy year in which the policyholder passes away. Although most ascending-term insurance plans furnish a lump sum payout upon death, some modern plans introduce the option of a monthly or yearly income. Following the insured's demise, these plans disburse the death benefit either in a lump sum or through periodic monthly or annual payments, spanning a specified duration.
Riders For Expanded Coverage: Riders serve as optional add-ons that broaden the coverage scope when chosen. These riders can be incorporated by paying a nominal additional fee. Most increasing term plans come with various popular riders.
Accidental Death And Disability Benefit Rider: In the event of accidental death or disability during the plan's duration, this rider provides an extra assured sum.
Critical Illness Rider: Should the insured experience any of the critical illnesses specified in the rider throughout the plan's term, the rider disburses an additional assured sum.
Waiver Of Premium Rider: In the unfortunate event of the life insured's death in an accident or disability, this rider exempts future premiums while the plan remains active.
Comparable Premiums: Despite the annual increase in coverage, the premiums for the plan typically remain constant throughout its tenure. The company factors in the augmented sum assured when calculating premiums in advance, ensuring a steady premium amount. Initial-year premiums are generally higher than required to account for the lower premiums in subsequent years as the assured sum grows. Additionally, the rates for increasing term insurance plans are higher compared to those for standard-level term insurance or declining term insurance plans.
Who Should Buy Increasing Term Insurance: Young investors can reap the advantages of an increasing term insurance plan. By initiating coverage at a young age, your insurance protection aligns with the increasing responsibilities that accompany your future. Furthermore, if you are in search of a life insurance solution that safeguards against economic inflation, an increasing term insurance plan is precisely what you need. Whether you've recently entered the workforce or are self-employed with a business, this plan offers a pathway to financial security. It ensures adequate coverage to address the rising financial needs that arise as your commitments and liabilities expand over time.
