Term Insurance with Increasing Cover: What You Need to Know

2023-05-01

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An increasing term insurance plan is a type of term plan where the base sum assured increases. Your financial situation may vary from time to time. The sum assured chosen by you during the inception of the plan may not be adequate in the future due to inflation.

The increased cover helps you to stay protected and aligned with your financial goals. The more the cover, the better you are protected. A term insurance plan is a pure protection plan that offers a death benefit to the beneficiaries when the policyholder passes away. So, it helps your family manage the financial shock in your absence.

Key Takeaways

Increasing term insurance ensures your sum assured, rises over time, keeping up with inflation and increasing financial needs.
Once purchased, the plan increases your coverage without requiring fresh medical evaluations, making it convenient and hassle-free.
This policy adapts to life changes like marriage, children, and home loans, securing your family's future.
Many plans allow you to lock in your premium while your sum assured continues to grow yearly.
Premiums qualify for deductions under Section 80C, and the death benefit is tax-free under Section 10(10D) of the Income Tax Act.

What is Increasing Term Insurance?

In an increasing term insurance plan, the sum assured increases by a predefined amount every year till the policy term. You can increase the sum assured to meet your life goals.

Insurance policies can be extended or renewed after the completion of their term. But the premium will be dependent on the person’s age and health at the time of the renewal. It may cause the new premium values to be higher or impose limitations on other benefits. These restraints can be avoided if one chooses an increasing term insurance plan.

For example, you can buy term insurance with an increasing cover option if you have a family.

At different milestones, you can increase the cover amount to meet the protection needs.

Canara HSBC Life Insurance iSelect Smart360 Term Plan has an increasing cover option that allows you to increase the sum assured by 10% every year after the completion of every policy year.

Also, with the Block your Premium option, you can increase the base sum assured by up to 100% at the same premium rate.

How Does an Increasing Term Insurance Plan Work?

Increasing term insurance plans are one of the best financial instruments to beat inflation.

Let us consider an example to understand how this plan works. The premium and sum assured will vary as per the terms and conditions of the policy purchased and the insurance company.

Mr. Himank bought an increasing-term insurance policy when he was 30. He decided to have a sum assured of ₹50 Lakhs for a policy term of 30 years. The plan provides a 5% annual growth in the sum assured amount, up to a maximum increase of 100% of the base sum assured.

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Policy Year	Sum Assured
Year 1	₹50 Lakhs
Year 2	₹52.50 Lakhs
Year 3	₹55.12 Lakhs
Year 4	₹57.88 Lakhs
Year 5	₹60.77 Lakhs

The sum assured will keep on increasing every year till the policy matures. However, it can only go up to 100% of the original sum assured and not more than that.

Key Features of an Increasing Term Insurance Policy

An increasing term insurance policy ensures that your life cover grows with time. It ensures that you stay aligned with inflation and your changing financial responsibilities. Here are the key features that make it a smart choice:

Automatically Increasing Sum Assured: Unlike traditional term plans, where the sum assured remains fixed, an increasing plan boosts your cover by a predefined percentage annually. This ensures your family receives a higher payout in the future, even as living costs rise.
Protection Against Inflation: The value of money diminishes every year due to inflation. The sum assured increase in this plan helps bridge that gap, ensuring your family’s financial needs are met, no matter how costs change.
Stable Premiums for Growing Coverage: Most term insurance with increasing cover locks in your premium at the time of purchase. So, even as your coverage increases annually, your premium may remain unchanged, making it a cost-effective way to secure higher protection over time.
.Flexible Growth Rate: Different insurers offer varied sum assured growth rates. Moreover, some plans may allow the sum assured to increase up to 100% of the base cover. Choosing the right growth rate ensures your plan aligns with your financial planning.
No Need for Additional Medical Underwriting: With an increasing term insurance policy, you don’t need to undergo fresh medical evaluations each time your sum assured increases. This is particularly beneficial as health risks tend to rise with age.

Helps Manage Future Financial Responsibilities: As you move through different life stages like getting married, having children, or purchasing a home, your financial responsibilities change. An increasing term plan adapts to these changes, offering enhanced security without requiring a new policy.
Reduces the Need for Multiple Policies: Instead of buying additional policies as your financial liabilities grow, an increasing term plan simplifies coverage expansion within a single policy. This avoids unnecessary paperwork and multiple premium payments.
Beneficial for Long-term Planning: Since term insurance with increasing coverage offers a rising sum assured, it’s ideal for long-term commitments like loans, children’s education, or retirement planning. This ensures your dependents can maintain their lifestyle even in your absence.
Ensures Financial Stability for Loved Ones: In case of an untimely demise, your beneficiaries receive a significantly higher payout over time. This ensures they can handle large expenses, such as home loans, medical emergencies, or education fees, without financial stress.
Tax Benefits on Premiums and Payouts: Premiums paid for an increasing term insurance policy qualify for tax deductions under Section 80C of the Income Tax Act. Additionally, the death benefit received by your family is tax-free under Section 10(10D).

Benefits of Buying an Increasing Term Insurance Plan

There are various benefits of an increasing term plan. Let us know more about each one of them in detail.

Beats Inflation: The increasing cover will help you fight the inflation. The sum assured amount that is effective today may not be adequate tomorrow. To beat the inflation, you will need an increased sum assured for the future. This plan gives you the chance to fight against inflation.
Meets Changing Financial Goals: The cover will help to meet your ever-evolving financial goals. Your financial needs may change as you grow in life. For example, the term insurance cover that was sufficient for you when you were single will never be enough when you get married.
Affordable: The premiums of an increasing term insurance are low and affordable. It depends on your life insurer if the premium of your term plan will increase or remain same. Check the terms and conditions of the plan before you decide on something.
Helps Save Tax: A increasing term insurance plan helps in saving tax under Section 80C of the Income Tax Act. The death benefit received by the nominees of the plan is also tax free.
No Additional Underwriting: As the base sum assured can be increased in the same term plan, you do not have to go through underwriting process again. However, if you apply for a new term plan, you will have to go through the same process.

Our goals may change at different life stages. These goals may be impacted by factors such as age, inflation, lifestyle and healthcare expenses. Hence, the coverage of your term insurance policy may be adequate to support your future financial demands. An increasing term insurance policy can adjust to the different financial conditions at different stages in life, giving you a chance to keep up with the economical dynamics.

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Increasing Term Insurance vs Other Term Plans

Choosing the right term insurance plan depends on your financial goals and future needs. Below is a comparison between increasing term insurance and other common term plans to help you make an informed decision.

Feature	Increasing Term Insurance	Level Term Insurance	Decreasing Term Insurance
Sum Assured Growth	Increases annually by a fixed percentage.	Remains constant throughout the policy term.	Decreases over time.
Premium Stability	May remain the same or increase slightly.	Fixed insurance premium throughout the policy term.	Generally lower premiums but the sum payout reduces over time.
Inflation Protection	Yes, the sum assured increases to counter rising costs.	No, fixed coverage may lose value due to inflation.	No, the payout decreases over time.
Ideal for	People with growing financial responsibilities (marriage, children, loans).	Individuals looking for simple and fixed coverage.	Borrowers who want life cover to match outstanding liabilities.
Death Benefit	Higher over time due to increasing sum assured	Fixed sum assured paid to nominees	Payout reduces as per policy terms
Medical Tests for Increase in Cover	Not required after policy issuance.	Not applicable.	Not applicable.
Tax Benefits	Premiums qualify under Section 80C; death benefit is tax-free under Section 10(10D).	Same as increasing term insurance.	Same as increasing term insurance.

Conclusion

An increasing term insurance plan is an excellent option for those looking to secure their family’s financial future against inflation and rising expenses. Unlike traditional term plans, it offers a growing sum assured, ensuring your coverage remains relevant over time.

The increasing term insurance, iSelect Smart360 Term Plan by Canara HSBC Life Insurance, is one of the plans you must explore. In addition to steady income benefits, you can enjoy coverage till the age of 99 years.

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Glossary

Inflation Protection: A feature where the coverage amount increases to match rising living costs.
Level Term Insurance: A term plan where the sum assured remains constant throughout the policy term.
Decreasing Term Insurance: A policy where the sum assured reduces over time, usually to match a loan repayment schedule.
Section 80C: A provision under the Income Tax Act that allows deductions on insurance premiums paid.
Medical Underwriting: The process of assessing health risks before approving an insurance policy.

FAQs Related to Increasing Cover Option in Term Plans

Opt for an increasing cover term insurance plan that will allow you to increase the cover amount. Or, if you have a spouse and that is the reason you want an increased cover, you can add them under the same policy.

Mostly, the plan is used to mitigate the effect of inflation. Also, as we grow in life, our responsibilities also increase. To help you align with your life goals, you will need an increasing term insurance.

The Death Benefit increases in an increasing term insurance plan. The beneficiaries will receive the benefits, which will help them manage the financial shock in case you pass away.

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.