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An increased sum assured term insurance plan is beneficial compared to a traditional one because of the rising inflation every year. A Rupee of today might be ninety paise the following year. So, wouldn't it be nice that the sum assured of your term plan also increases with inflation rates, just like your salary hike? This would mean an increased life cover along with other benefits. If you are confused about the meaning of an increased sum assured plan, this article is for you. From benefits to its working, you will know everything about this concept in this article.
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Your responsibilities increase as you age. Your income, expenses, and liabilities increase over time. However, the life coverage you selected at plan start may not be sufficient.
An increasing term insurance plan is a unique policy where the sum assured increases every year by a fixed amount. This feature helps to keep inflation in check. So, you can sleep peacefully at night knowing that your family is protected at all times with appropriate life cover.
Term Plans
We can explain to you about a term Insurance policy with increasing payout all day. However, the best way to understand this plan is by a real-life example. So, mentioned below is a real-life case where the sum assured increments with time:
Let's say Rahul is 40 years old and purchases a term plan with incremented payout with a sum assured of Rupees 20 lakhs. The tenure is 30 years. The policy includes a 5% increment on the base sum assured (at the time of policy purchase). This increment is applicable every year and the maximum increase is 200% on the based sum assured amount.
Let's see how the increase in sum assured will happen over the next few years:
|
Tenure |
SA as Applicable |
|
1st Year |
20 Lakh Rupees |
|
2nd Year |
21 Lakh Rupees |
|
3rd Year |
22 Lakh Rupees |
|
4th Year |
23 Lakh Rupees |
|
5th Year |
24 Lakh Rupees |
|
6th Year |
25 Lakh Rupees |
|
7th Year |
26 Lakh Rupees |
|
8th Year |
27 Lakh Rupees |
|
9th Year |
28 Lakh Rupees |
|
10th Year |
29 Lakh Rupees |
|
11th Year |
30 Lakh Rupees |
|
12th Year |
31 Lakh Rupees |
|
13th Year |
32 Lakh Rupees |
|
14th Year |
33 Lakh Rupees |
|
15th Year |
34 Lakh Rupees |
|
16th Year |
35 Lakh Rupees |
|
17th Year |
36 Lakh Rupees |
|
18th Year |
37 Lakh Rupees |
|
19th Year |
38 Lakh Rupees |
|
20th Year |
39 Lakh Rupees |
|
21st-30th Year |
40 Lakh Rupees |
Note that there will be no increase in the sum assured amount from year 22 onwards. This is because the maximum permissible amount increase is Rupees 40 Lakhs which was reached at the end of year number 21. If Rahul, unfortunately, passes away during year number 15, his nominee would receive Rupees 34 Lakhs as a death benefit instead of Rupees 20 Lakhs during policy purchase.
However, if Rahul passes away any time after year number 21, the maximum permissible sum assured (Rupees 40 Lakhs) will be paid to the nominee.
Note: It is suggested to calculate the term plan premium on the term insurance calculator online tool by Policybazaar before buying the plan.
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The coverage increments every year, but the premiums paid under the plan are usually constant throughout their tenure. Calculation of premiums is done in advance to account for the corresponding increase in sum assured. This ensures that premiums remain uniform.
The premiums paid in the first years are usually higher than necessary to compensate for the increased sum assured. Note that the premiums for increasing term plans are higher compared to a decreasing or level term plan.
As stated previously, the sum assured increases each year. Some plans have a maximum increase in the sum assured. The increment ceases after that limit, even if the plan tenure is continued. The sum assured increases as a specific percentage of an absolute amount. The percentage in sum assured increase is stated in advance and remains the same throughout the term.
As with normal term life insurance, increasing term plans pay only a death benefit. The death benefit amount is the amount assured (after an increase) at the beginning of the policy year when the life insured died. Most increasing term insurance plans pay a lump-sum benefit upon death.
However, some new plans offer a monthly income payout. These plans pay the death benefit in a combination of lump sums and monthly or annual incomes, or entirely in monthly incomes for a specific tenure following the insured's death.
These are add-ons to an existing policy to enhance its benefits. Riders are available for an extra small premium. Common riders available on many increasing sum assured policies include:
When you decide to purchase a term policy with increasing payouts, you get the below-mentioned benefits:
You have very few responsibilities if you're not married. However, your responsibilities increase as you start a family after marriage. You need to plan for your child's school and college fees, your retirement, your debts, and your assets.
In such a case, your sum assured should increase as your financial obligations grow. An increasing term policy that increases the sum assured over time can help you meet your family's financial requirements over time.
You need a life cover that keeps up with inflation as it continues to rise slowly but steadily each year. A term insurance plan that increases in sum assured value each year is an excellent way to protect your family from the heat of rising expenses. It will also give you peace of mind that you have covered all the bases for your family.
An increasing term policy also helps you save taxes, similar to a decreasing or level term plan. You can save taxes on the premiums you pay, up to Rupees 1.5 lakhs per financial year. The death benefit under the plan is also exempt from tax. Also, the plan does not have a limit on how much tax-free benefits you can have.
The best aspect about an increasing term plan is that the premium rates are justified. Even though coverage increases over time, the premiums remain the same and don't put too much strain on your pocket.
If you're young and anticipate your responsibilities will increase in the coming years, an increasing term plan might be ideal. You would get more coverage to cover your future obligations as you age. So, evaluate your needs, employment, and family requirements. If you think an increasing term plan could benefit your family, why think twice before buying it?
Next, you may wonder if any plan providers in India offer the increasing term plan. Yes, there are many! Below is a list of some of the insurers who offer an increasing term plan:
|
Plan Name |
Maximum Permissible SA |
Percentage Increment in the SA Amount |
Unique Features |
|
SBI Life eShield Plan |
Rs.20 lakhs and above |
10% simple rate of increase in the sum assured after every 5 policy years |
2 Plan choices plus Accidental Death Benefit |
|
Birla Sun Life Protector Plus Plan |
Rs.30 lakhs and above |
5% or 10% simple rate of increase in the sum assured at the start of every year |
A complementary Permanent & Total Disability Benefit can be availed You can avail of death benefits in equal amounts. There are multiple riders to expand the coverage scope. |
|
SBI Life Smart Shield |
Rs.25 lakhs and above |
5% simple rate of increase in the sum assured at the start of every year |
Justified premiums + great discounts Three elective riders for increased protection |
|
Birla Sun Life Insurance Protect @ Ease |
Rs.30 lakhs and above |
5% or 10% simple rate of increase in the sum assured at the start of every year |
You can increase the SA during childbirth and marriage. Multiple riders to expand the coverage scope. You can avail of this plan on a joint-life basis. |
Disclaimer: Policybazaar does not endorse, rate, or recommend any particular insurer or insurance product offered by an insurer.
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C apply.
Note: Know what is term insurance first and then buy a term plan for your loved ones.
Online purchase of an increasing term plan can be made through the websites of different insurance companies. Note that to purchase this term policy, you must be at least 18 years old and not older than 60.
Moreover, your Insurer will require you to provide your KYC and any other documentation required to purchase this policy. Also, the surrender and maturity benefits are subject to policies terms and conditions.
Inflation rises every year, so do your family's financial requirements. You don't want to compromise on their risk cover. So, make an informed decision by buying an increasing term plan that will provide apt risk protection against uncertainties in the future.
Note: Check out the best term insurance plan in India and choose one that suits your requirements.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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