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How does Increasing Cover Work in Term Plans in India?

How does Increasing Cover Work in Term Plans in India?

Term Insurance Cover

Online term plans have been gaining popularity among the new-generation in India. In fact, term insurance plans are one of the highest sold financial products online. This popularity is not because of one or two incentives or unavailability of options. It’s just that the best term plans in India offer some amazing features to ensure your family’s financial safety.

One of the latest additions to the features of term insurance plans is the growing term insurance plans. These plans offer you the option to increase the benefit amount without having to buy a new policy every time.

The Need for Growing Term Insurance Cover

Nishtha is just 25 years old right now. She has already started earning and is confident of growth in her career. Being the youngest in her family, she has never felt the need for responsible use of the money, however. Blame it on her doting siblings or parents, but gradually she is realising that the real world outside her family could be slightly different.

As she can now see within the family, as well, after her eldest brother recently tied the knot that responsibilities will only grow in life. Similarly, our responsibilities also grow with us, so does our incomes (read lifestyle) if we are working hard.

Along with responsibilities and incomes the umbrella we build for our families to survive under after emergencies should also grow larger. In simpler terms, as you acquire family and it grows with children, so do your responsibilities of providing them a secure financial future. Therefore, your insurance cover, especially the term insurance cover should also grow.

How Does Your Term Insurance Cover Increase?

There are multiple ways you can keep your term insurance cover growing along with your responsibilities:

  • Buy additional life covers: Buying additional life cover is simple as you can apply for a new term or other life insurance policy with significant growth in your income.
  • Buy a plan with Life-stage increment options: You can simply ask the insurer to increase your sum assured of the policy at certain predefined points in life. However, the policy should have this option at the time of purchase.
  • Get an increasing cover term insurance: Increasing term cover is where your sum assured of the plan automatically grows every year. Here also, you do not need to buy another policy; you will not even have to submit a request for increment.

What Are The Differences?

How to increase your insurance coverage?

When to Select Which?

There are many other factors you should know about each of these options:

  • New Policies: This is something you will automatically end up doing. You can buy a new policy with added life cover at the time of investing in a child’s education and marriage goals. You can also buy additional life cover with pension plans.
  • Life-stage Growth: This is only possible for those buying early or at least right after marriage. As the largest increment occurs at marriage (50%), it makes sense to have this option in the policy if you are buying before marriage.
  • Increasing Term Cover: From the point of view of convenience, this cover is the most comfortable. The sum assured can keep growing automatically every year as your life goes on. But it also does not give you a choice to stop the increments. Unlike in life stage option, where you can avoid increasing your term cover until you get married or plan for a baby.

So, if you already have a family, perhaps this option would be a better choice for you.

Examples of Increments

Since increment is pretty simple and easy to grasp when it comes from buying a new life insurance policy, let’s take the examples of the other two options only.

Assuming you bought a term plan of Rs. 50 lakhs (base sum assured) at the age of 27, while still unmarried. Insurer allows three life-stage increments on this plan:

  • 50% of the base sum assured at Marriage
  • 25% of the base sum assured at 1st childbirth
  • 25% of the base sum assured at 2nd childbirth

Also, since you could buy a term cover of Rs. 50 lakhs at the age of 27, your annual income must have been Rs. 5 Lakhs; i.e. 10 times of annual income.

So, if you ask the insurer for the first life stage increment at the age of 30 after getting married, the insurer will add Rs. 25 lakhs more to your term cover. Provided your annual income is higher than Rs. 7.5 lakhs, thus, increasing your total available cover to Rs. 75 lakhs. Similar rules will apply to the other two increment requests.

Increasing Term Plans in India:

Canara HSBC OBC Life’s iSelect Star term plan offers the increasing life cover feature. The sum assured in this plan grows at a consistent simple rate of 5% every year.

So, if you sign-up for a policy with initial sum assured of Rs. 1 crore, the sum assured will growth to Rs. 1.05 crore next year, and Rs. 1.1 crore the next. It’ll keep growing at 5% of the base sum assured until it reaches the Rs. 2 crores threshold; i.e. double the base sum assured. Hope the examples and feature comparison will help you decide better for your family and their safety.

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