If you are someone who has recently started earning, you are bound to look for the most affordable options in everything you buy. Whether it is shopping, groceries, or even insurance, things that are easy-on-pocket are your go-to options. But you cannot consider cost as a definite measure when buying term insurance or any other life insurance product.
The important factor that most fail to take into account when buying term insurance in India is the growth (in income as well as expenses). Your responsibilities are bound to grow as you grow older. So, even if you have purchased a term plan in your early 20s, you need to review/enhance its coverage when you enter your 30s. Chances are that you might need a higher coverage than before.
In such a case, it is best to buy a term insurance plan with an increasing cover facility as opposed to a basic term plan.
How Does an Increasing Term Insurance Plan Work?
Increasing term insurance is a variant of the basic term plan. If you are aware of how a regular term insurance plan works, understanding and buying an increasing insurance plan will be easier for you. As you may have guessed from its name, an increasing term insurance plan is a policy that increases your coverage over the policy duration.
Let’s assume that you purchased an increasing term insurance plan in your early 30s having coverage of Rs. 40 Lakhs and a duration of 30 years. Supposedly, the policy allows a 5% increase in the coverage every year, which will be up to 50% over a decade. This brings your total sum assured to Rs. 60 Lakhs. The premium you pay towards this policy remains constant throughout the plan.
In simple terms, you secure a higher coverage with increasing term insurance for your base premiums. You can use the term insurance calculator to determine the policy cost based on your desired coverage and rider benefits.
Perks Associated with Increasing Term Insurance
- Combating Inflation
The whole point of an increasing term insurance plan is to have extensive coverage that combats yours and your family’s rising financial needs. However, that idea stems from the concept of inflation. Costs of everything in life have been on a steady rise and seem to continue the same track for the foreseeable future. However, an increasing term insurance plan allows your family to adjust to these rising prices, even if you are no longer around to provide for them.
- Low Prices
Term insurance is the most affordable life insurance product available in the market. An increasing term plan is no different. As stated earlier, your term insurance premium remains the same, even if the coverage keeps increasing every year. So, as you start to earn more in life, you get more life insurance coverage without having to spend more money. The extra money you earn can be used for various other investment opportunities to build your wealth.
- Tax Saving
Just like any other insurance plan, increasing term insurance also provides several tax benefits. The premiums paid towards the policy can be claimed for tax deductions under Section 80C of the old income tax regime. Moreover, the death benefit received by your family is tax-free under Section 10(10D) of the Income Tax Act, 1961.