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What is an Incremental Life Insurance Policy?

Published On Apr 20, 2023, Updated On May 02, 2023

Term insurance is a life insurance policy that provides financial protection to the policyholder. In case of the demise of the life assured within a policy tenure, the nominees receive the death benefits from an insurance company. When choosing a term plan, numerous factors such as liabilities, assets, future financial goals, and current income are taken into consideration. But, the needs and wants of people continuously change due to changes in lifestyle habits, rise in income, medical expenses, and more. So, how it will be possible to deal with these volatile conditions with a fixed-tenure term insurance plan? Here’s when incremental term plans come to the rescue. Read on to find out the meaning, benefits, and how incremental life insurance plans work in detail! 

What is an Incremental Life Insurance Policy

What Are Incremental Term Life Insurance Plans? 

An incremental term plan is a type of life insurance policy in which the sum assured of the policy is increased annually. With the increase in the cover amount of the policy, you may also have to pay a higher premium. The policyholder can choose the increased rate of the amount after considering certain factors such as financial goals and market inflation rate. 

These types of plans are very beneficial because they not only provide financial coverage to the loved ones of the policyholder but also help you in upgrading your financial condition. 

What Are the Benefits of Incremental Term Life Insurance Plans? 

Here are the benefits of purchasing incremental term life insurance plans. 

  • Cost-Effective: A premium paid towards an incremental term life remains constant throughout the entire policy tenure. Therefore, you don’t have to worry about the rise of premiums in between the policy period. 
  • Death Benefit: In case of the demise of the life assured, the nominees of the policyholder receives a death benefit from an insurance company. Therefore, increased coverage will ensure that your loved ones don’t have to worry about finances. 
  • Hedge Against Inflation: With inflation in each sector, it is important to purchase a term plan that provides enough coverage to your loved ones. Therefore, an incremental term plan will ensure that your family keep your family financially stable even after your unfortunate demise. 
  • Additional Riders: The policyholder can enhance the coverage of their standard incremental life insurance policy by purchasing riders. Many life insurance companies provide critical illness riders, accidental death benefit riders, waiver of premium riders and more to the policyholders. You may have to pay an additional premium to purchase these riders. 

How Does an Incremental Term Life Insurance Plan Work? 

Let us understand the workings of an incremental term life insurance plan with the help of Sakshi's example. 

Sakshi bought an incremental term plan with a sum assured of Rs. 1 crore for 20 years of tenure. The coverage amount will increase each year at a fixed rate of 10% so that it can reach up to 200% of the base sum assured, which is Rs. 2 crores. Therefore, the coverage amount for 10 years will be: 

Policy Year

Sum Assured (in Rs.)

Year 1

1 crore

Year 2

1.1 crore

Year 3

1.2 crore

Year 4

1.3 crore

Year 5

1.4 crore

Year 6

1.5 crore

Year 7

1.6 crore

Year 8

1.7 crore

Year 9

1.8 crore

Year 10

1.9 crore

Year 11

2 crore

Why Should You Buy Incremental Term Life Insurance Plans? 

Mishaps can happen anytime, whether you're travelling to the office or on vacation. Therefore, the sudden demise of the earning family member may financially impact their loved ones. When you purchase an incremental term life insurance plan, the higher sum assured coverage will ensure that your family is financially safe even when you are not around. An incremental term plan is an ideal choice for young individuals who want to secure the future of their family with a high coverage amount. 

Wrap Up 

In conclusion, term plans are pure and simple life insurance products that provide financial protection to the nominees in the event of the demise of the policyholder. An incremental life insurance policy helps you increase the sum assured annually at a fixed rate. Therefore, with these types of plans, you can create a pool of funds and secure the future of your loved ones.

Also Read: 

Does the insured's gender matter in a term insurance policy


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.

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