What is Increasing Term Insurance Plan in India?

What is an Increasing Term Insurance?

How Does an Increasing Term Insurance Plan Work?

Features of Increasing Term Life Insurance

The major features of increasing term insurance include the following: 

1. Increasing Coverage

The increase in sum assured that this term plan offers, happens on a certain rate. This rate is decided at the inception of the policy and remains same throughout the policy tenure.  Some policies also have a cap on the maximum sum assured that can be reached.

2. Constant Premium Rates

An increasing term plan is an affordable way to ensure your family's financial security in the long run. While the sum assured increases every year, the premium is decided at the inception of policy and remains constant throughout the tenure of the policy.

3. Flexible Death Benefit Payout

While some plans pay the death benefit as a lumpsum on death of the life assured, a few others provide you the flexible option of receiving death payout in the form of monthly, increasing monthly or monthly + lumpsum instalments.

4. Additional Riders

You can customize your plan with additional riders as per your requirements. They can be added with a nominal fee and enhance the coverage of your policy. Some of the most common riders are critical illness rider, accidental death rider and disability rider, terminal illness rider etc.

Benefits of Increasing Term Insurance Plan

Here are some of the major benefits of an increasing term life plan:

1. Helps to Beat Inflation

Insurance plans are long term investments. We usually buy term plans for 15-20 years. However, coverage that seems enough today might not be adequate tomorrow, with the ever-increasing inflation.

Thus, the increasing sum assured of the policy helps to keep up with inflation, ensuring that the policyholder's financial needs are met at every stage in the future.

2. No Additional Underwriting Required

In these plans, the sum assured increases annually as per a pre decided rate. Since it’s the same policy, you don’t have to undergo the process of underwriting every time the sum assured increases.

In the other case, if you had to buy a new policy to increase your sum assured, you will need to go through the hassle of underwriting again.

3. Provides Adequate Financial Protection

A person might not be aware of their future liabilities while buying their first term plan. With increasing age, the responsibilities evolve, the liabilities increase and financial goals change.

An increasing term plan offers increasing death benefit over time, ensuring that the policyholder's family is adequately financially protected, and their goals are met in case of untimely demise of the policyholder.

4. Tax Benefits

You can avail tax benefits on your premiums paid and the death benefit received under Section 80C and Section 10(10D) of the Income Tax Act, as per the prevailing tax norms.

Who Should Opt for an Increasing Term Insurance?

Comparison of Increasing Term Insurance with Other Types of Term Insurance

Here is a comparison between the three main types of term plans- Level Term Plans vs Increasing Term Plans vs Decreasing Term Plans:

Point of Difference
Level Term Plan
Increasing Term Plan
Decreasing Term Plan
Death Benefit
The death benefit remains constant throughout the term.
The death benefit increases over the term.
The death benefit decreases over the term.
Generally lower compared to increasing term plans but may be higher than decreasing term plans at the start.
Typically, higher than level and decreasing term plans due to the increasing coverage.
Generally, starts higher than level term but decreases over time, often lower than increasing term plans.
Coverage Needs
Suitable for those with relatively stable financial obligations.
Ideal for those expecting a growth in financial responsibilities.
Best for those whose financial obligations decrease over time, like a mortgage.
Financial Planning
Provides a predictable safety net for beneficiaries.
Helps keep pace with inflation and increasing living costs.
Aligns with decreasing liabilities, preventing over-insurance and optimising budget.
Target Audience
Individuals with a clear understanding of their long-term financial needs.
Those anticipating significant life changes, such as starting a family or career progression.
Primarily borrowers or those with diminishing financial obligations over time.

An increasing term insurance plan is an ideal option for those who want to ensure that their family is financially protected in the long run. With the increasing sum assured feature, the policyholder can keep up with inflation and meet their financial goals over time, thus protecting their family’s future today and tomorrow.

FAQs about Increasing Term Insurance

Can I get a loan against my increasing term insurance plan?

No. Any kind of term insurance plan does not have a savings component and hence can’t be taken loan against.

How is the premium for an increasing term insurance plan calculated?

The premium for an increasing term insurance plan is calculated based on the policyholder's age, sum assured, policy term, premium payment frequency, and health condition. It is usually a bit higher than the traditional term plans.

Can I increase the base sum assured of my increasing term insurance plan after buying it?

No, the base sum assured of an increasing term insurance plan cannot be increased after buying it. The policyholder needs to purchase a new policy if they want to have a higher sum assured.

Why should I choose increasing term insurance over a level term policy?

You can choose increasing term insurance if you expect your financial responsibilities or the cost of living to increase over time, such as covering a growing family's needs or accounting for inflation.

Can the increase in coverage be customized?

Yes, many insurers offer the option to customize the rate at which the death benefit increases, though this will also affect the premium adjustments.

Is there a limit to how much the coverage can increase?

Yes, insurers typically set a cap on the maximum coverage amount or the rate of increase to manage their risk. 

How are the increases in coverage reflected in the policy premiums?

The premiums will increase at predetermined intervals to reflect the higher amount of coverage being provided.

Is a medical exam required for increasing term insurance?

This depends on the insurer, the insured and the policy. Initially, a medical exam may be required, but subsequent increases in coverage might not require additional exams.

Does increasing term insurance provide any cash value?

No, increasing term insurance does not accumulate cash value like whole life or universal life insurance policies do. It's a term plan and provides only life cover.

How does inflation impact the decision to choose increasing term insurance?

Inflation can erode the purchasing power of a fixed death benefit over time, making increasing term insurance an attractive option for those looking to maintain the real value of their coverage.

Can the policy be cancelled if my needs change?

Yes, you can cancel the policy at any time, though you will not receive any refund of premiums paid unless you have a return of premium term policy.