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Increase denotes a constant rise in something. With time, your cost of living increases, your income increases, your financial needs increases and responsibilities increases too. When you think of providing a security net to your family, a term plan fits the best which provides a death benefit in case of an untimely death of an earning member.
Death cover or sum assured is a fixed amount under a pure term plan which stays constant throughout the term. A fixed death benefit may not be enough to fund the growing financial needs of your family or to confront the rising inflation down the line.
There is another category under Term Plans known as “INCREASING TERM PLAN.” Let us understand all about increasing term plans.
Increasing term plan is a type of a term plan which offers a percentage increase in your death cover every year by 5% or 10%. The death cover increases to a limit where it doubles the original death cover amount.
The following main features characterize increasing term plan:
Let us understand the increasing term plan with the help of an example:
Rahul will pay the premium annually, and the sum assured increases from year 2 of the policy term.
The below table shows the sum assured increment during the policy year.
|Policy Year||Applicable Sum Assured (INR)||Increment (INR) (5% simple rate p.a)|
|Year 10||14,50,000||2,50,000 *(from 6th policy year to 10th policy year)|
|Year 15||15,00,000||2,50,000 *(from 11th policy year to 15th policy year)|
|Year 20||17,50,000||2,50,000 *(from 16th policy year to 20th policy year)|
|Year 25 onwards||20,00,000||2,50,000 *(from 21st policy year to 25th policy year) *Increase in sum assured stops as the sum assured has doubled.|
|Year 30||20,00,000||Policy maturity year|
As per Rahul’s Increasing Term Plan, the death benefit would increase every policy year till it doubles the original sum assured.
The original sum assured is Rs 10 Lakh. But being an Increasing Term Plan, the sum assured has increased from Rs 10 Lakh to Rs 15 Lakh. The nominees will receive increased sum assured of Rs 15 Lakh.
The death benefit payable to Rahul’s nominee will be 200% of the original sum assured due to increase sum assured feature. The sum assured payable at the time of death in the 25th year will be Rs 20 Lakh.
Rahul has been paying regular premiums through the policy span of 30 years and now the policy reaches the maturity stage. No maturity benefit is payable to Rahul as it is a term insurance policy which offers only death benefit.
Increasing Term Insurance Plan is suitable to combat the following aspects:
Inflation is the rate at which the price of goods and services rise year on year basis. The current inflation rate is 4.96 % for the year 2018 till date and rose by 1.36% as compared to the year 2017. Term plan is all about providing a financial assurance to your family in your absence. Financial assurance should be substantial enough so that it could be able to maintain the similar standard of living for your family. With inflation rising year on year, the amount of death cover opted by you while taking a pure /level term policy may fall short to fund your family’s expenditures.
Thus, increasing term plan enables your death cover to rise year on year to mitigate the effects of inflation.
There are various life stage events in your life like getting married, blessed with a child, birth of a second child, school/college admission of your kids, the marriage of your child, etc. Such changes increase the responsibility of the earning member of the family to be able to fund the life stage events.
The increasing term insurance plan will offer year on year increase to be able to have adequate amount as financial security for your dependents and to fund their own expenditures.
Riders are additional benefits which can be added to the increasing term plan by paying a nominal extra premium. Following riders or add-ons could be added to get a complete coverage against sudden accidental death, disability, and disease.
There could be other riders which can be bought and are available on a plan to plan or company to company basis.
Increasing term plan can be bought through an online or offline mode based on your feasibility and convenience.
Online -One can buy an increasing term plan online directly from the company’s website or a registered insurance web aggregator’s website.
Offline - Once can go to the insurance company’s branch, connect with an agent or a broker to buy an increasing term insurance plan.