Is Your Life Insurance Coverage Keeping Up with Annual Raises?

2025-03-22

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Life insurance policies are one instrument that almost everybody invests in on a regular basis. A life insurance policy ensures that the family is well looked after and financially comfortable, even if the primary breadwinner is no longer around to look after their wants and needs.

The amount of life insurance coverage one opts for naturally depends on the amount they earn, the amount they wish to leave behind and the amount that the family ordinarily requires to maintain their standard of living.

As a general thumb rule, it is recommended that one opts for life insurance coverage that is at least 10-15 times their annual income. Many a time, however, this estimate does not take into account the annual pay hikes in one’s income. But, contrary to this practice, your annual pay hikes should play a large role in determining your life cover and here’s why.

A pay hike can affect you and your family in the following ways:

Increase in standard of living: With an increase in income, the standard of living of your family also increases. This results in the family having increased expectations that need to be met by the policyholder. As a result, the sum assured of the policy must also increase in order to comfortably meet these increased requirements.
Increase in taxation: India follows a progressive taxation system. Thus, with an increase in income comes an increase in your tax rates. You move to a higher tax slab and are subject to proportionately higher rates of tax. Life insurance can be a life-saver, even in this arena, since it provides manifold tax benefits to policyholders.

The solution

The solution to this pressing issue is rather simple and straightforward. To allow for such eventualities, insurers now offer Increasing Life Insurance which lets policyholders augment their coverage at a fixed rate every year. With your annual pay hike, you also witness a hike in insurance coverage every year, which allows you and your family to stay adequately protected.

Read on to learn about the reasons why an increasing term insurance policy will be ideal for you.

How increasing life insurance coverage can be the ideal solution:

Aids your increased standard of living: With a hike in pay, comes a hike in purchasing power. While your cost of living would not increase much with a span of a year, over the course of several years your hike in pay could lead to a much higher cost of living. Thus, you would be motivated to splurge on different items, including goods and commodities, make financial investments, even take on debt or grow your family. A pay hike could lead to increased spending in a number of ways and it is important that your life insurance coverage keeps pace with this additional spending.
Tax Benefits: Your hike in pay could lead to a hike in tax rates. Your life insurance plan is eligible for tax benefits under the Income Tax Act, 1961. The premiums paid on the policy are tax-deductible up to as high as Rs. 1.5 lakh in one financial year, underSection 80C of the Income Tax Act. Even if you find yourself in need of additional tax benefits, life insurance can come to the rescue. By opting for a health insurance rider along with your life insurance policy, you can claim additional deductions of up to Rs. 25,000, under Section 80D of the Income Tax Act. Thus, even as your tax rates increase, you can claim a high amount of deductions with the help of a life insurance policy.

Other Benefits of Increasing Life Insurance

Apart from helping your coverage align with your pay hikes, increasing life insurance also helps beat inflation and meet the needs of your growing family.

Acts as a Counter Measure Against Inflation: The retail inflation rate in India is already reaching tremendously high levels and is expected to go even higher. India’s consumer price inflation rate reached a whopping 7.59% in January of 2020. Thus, it is best to opt for an increasing term insurance plan which lets you provide coverage that is in line with a spike in inflation rates.

Helps Meet the Needs of your Growing Family: With an increase in age, comes an increase in the number of dependents in your family. You may get married, bring kids into this world and also have to provide for your aging, retired parents. As your dependents increase, so would your costs. To keep pace with this increase in costs over the years, increasing life insurance is the perfect solution.

Conclusion

While life insurance policies are a great instrument to invest in, increasing life insurance plans are the most beneficial for those at the start of their career or at a young age as they allow you to adjust the premium amount depending on your individual capabilities and career growth. Opt for the iSelect Smart360 Term Plan, available on Canara HSBC life Insurance, to get a policy that lets you augment your coverage yearly. With the iSelect iSelect Smart360 Term Plan, you can increase your coverage at the rate of 5% every year. At the time of maturity, your life coverage will have increased by 100% from your original sum assured.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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