Is Increasing Term Plan Worth It?

As the name suggests, an increasing term insurance plan is a term insurance plan wherein the sum assured chosen on plan commencement increases every year by a specified amount. It is just opposite to the decreasing term insurance plan. The premium rate might or might not remain the same throughout the plan tenure. However, the coverage allowed under the plan depends on the health of the insured at the time of buying the policy.

Increasing term insurance is typically designed keeping inflation and other changing circumstances in life in mind..While this is the simplest and the most basic definitions of an increasing term insurance plan, the plan actually has many features which are discussed below.

Features of Increasing Term Insurance Plan

Following are the features of an increasing term insurance plan: 

• Coverage

The sum assured, as stated earlier, increases every year. Some plans have a limit to the maximum increment in the sum assured and the increment stops after the maximum limit is reached even though the plan tenure continues. The rate of increase of sum assured might be expressed as a percentage or an absolute amount. In both the cases, the rate of increase is mentioned beforehand and stays the same throughout the plan tenure. If the sum assured increases by a percentage, the increase could be at a simple rate or at a compounded rate though a simple rate is usually the norm.

• Premiums

Even though the coverage increases every year, premiums under the plan usually remain constant throughout the plan tenure. The company accounts for the increase in the sum assured while calculating the premiums beforehand and so premiums are uniform. Usually, premiums paid in the initial years are higher than required to compensate for the lower premiums when the sum assured increases over time. Moreover, the premiums of an increasing term insurance plan are higher than premiums charged by a normal level term insurance plan or a decreasing term insurance plan.

• Benefits

Like normal term life insurance plans, increasing term plans also pay only a death benefit. The amount of death benefit is the sum assured applicable (after increase) at the start of the policy year in which the life insured died. While most increasing term insurance plans pay a lump sum benefit on death, there are some plans, which have been recently launched which have a monthly or annual income payout. These plans pay the death benefit partly in lump sum and partly in monthly or annual incomes or completely in monthly or annual incomes for a specified tenure after the death of the insured.

Advantages of Increasing Term Insurance Plan

Here is a list of advantages of an increasing term insurance plan: 

• Is Effective Against Inflation

As inflation increases gradually yet steadily every year, you need coverage which beats inflation. An increasing term insurance plan helps you from those extra expenses that inflation brings along.. As the sum assured increases every year an increasing term plan is an effective tool against inflation and gives you a cover, which helps your family meet the increased financial expenses.

• Helps in Meeting Increased Financial Requirements

When you are not married you have little or no responsibilities. After marriage as you start your family, your responsibilities multiply. You have to plan for your kids, for paying off your loans, for creating assets and for creating a retirement fund. As your financial needs multiply your sum assured should also increase. An increasing term life insurance plan helps in meeting the increased financial responsibilities by increasing your coverage steadily over time.

• Is Affordable

The best part about increasing term insurance plans is that the premiums are low and affordable. Moreover, premiums also remain constant and do not put a strain on your pockets even though the coverage increases.

• Saves Taxes

Yes, just like other life insurance plans, an increasing term insurance plan also saves your taxes. The premiums you pay for the plan are tax-free up to a limit of Rs.1.5 lakhs in one financial year. The death benefit you receive under the plan is also tax-free. Moreover, there is no limit on the tax-free benefit received under the plan.

Conclusion

An increasing term insurance plan is suitable for you if you are young and expect your responsibilities to increase in the future. The plan would increase the sum assured to pay for your increased responsibilities in future. Moreover, if you want a plan which pays a benefit which corresponds to the economic inflation, an increasing term life insurance plan is your go to plan. So, assess your needs and, if suitable, choose an increasing term insurance plan.

Also read: 

Does It Make Sense for You to Buy a Joint Term Life Cover with Your Spouse?

Monthly vs Lump-sum Pay-out in Term Insurance

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.