Term insurance policies have steadily gained ground as a solid financial security product to safeguard an entire family’s future in the policyholder's absence. They are affordable and come with multiple riders that help customise the policies to suit the beneficiaries' and policyholders' varying financial requirements/goals. Apart from these perks, term insurance policies have one extra advantage—they are a lock-in life insurance product. This means that the premiums of a term insurance policy are locked in (or fixed) according to your age when you purchase the term insurance plan.
Now, like any financial product - term insurance plans have their advantages and disadvantages. In the list of the cons, term insurance providers are pretty stringent about the eligibility requirements, including the income, habits and lifestyle, occupation, age, existing financial liabilities, and bandwidth of the policyholder. Additionally, the term insurers do not usually allow any changes to be introduced to the base sum assured. This can be a significant drawback for policyholders, considering that financial goals and requirements can change over the years and not all these changes can be predicted and factored in while computing the ideal term insurance cover.
To cater to this drawback, which could have led to a significant dropout of policyholders opting for term insurance plans, term insurers offered options like increasing term insurance options. This can be a great perk considering the evolving financial goals, inflation, etc. However, the question is, how lucrative are these increasing term options? What are the term insurers and term insurance policies offering this option? Should you opt for these variants? Let’s find out!
What is Increasing Term Insurance?
Just like the name suggests, increasing term insurance suggests term insurance policies in which the cover amount is boosted year over year or across certain intervals.
Let’s take an example to understand this better -
Rohit is a 20-year-old, non-smoking male policyholder seeking a term insurance policy that would cover him till he turns 65 years old. He opts for a ₹1 crore cover.
He assumes that his coverage will need to cover his spouse, one child, and his parents and considers the standard inflation rate as a factor. However, he has two children, witnesses a higher inflation rate, and his children take time to become financially independent.
In general, this should have hampered his overall financial stability since a few factors went off the rails compared to his initial assumptions/anticipations. However, since his policy offers the increasing term insurance option, the base amount gets boosted by 5% (as pre-decided under his plan) each year until it doubles or the tenure ends (whichever comes earlier). This means that he ends up with a higher base amount that would help him adjust to the evolved financial requirements.
This is a great perk to have in a term insurance policy. However, please remember that you can only opt for the increasing term cover option during the policy purchase and not later.
Should You Opt for An Increasing Term Insurance Policy?
Now, in general, we always recommend that you opt for free calculators to determine the ideal term insurance cover (that factors in your current financial liabilities, inflation, age, policy tenure, smoking habits, number and age of dependents, etc.). This is because the amount varies from one policyholder to another (remember, term insurance plans are supposed to act as your financial replacement, and the cover should match your family’s future financial goals and requirements).
However, despite such careful calculations, unforeseen events, like the addition of a dependent, the delay in financial independence of a dependent, unexpected spike in inflation rates, etc., can lead to the need for a higher cover amount than previously planned.
While some of these circumstances can be catered to via riders or in-built features like Life Stage Benefits or Inflation Shield, not all events can be covered under these term insurance add-ons. This makes it crucial to avail of increasing term insurance plans.
Coming to increasing term options offered by insurers -
- A 5% year-on-year increase in the term insurance cover
- A 10% increase of the base cover amount every 5 years
Based on the insurer chosen, these are the two options that policyholders can opt for. Now, let’s find out what the top term insurance providers are offering, such Increasing Term Insurance options.
What are the Best Term Insurers for Increasing Term Insurance Plans?
When it comes to increasing term insurance, a couple of insurance providers come to mind -
- HDFC Life - HDFC offers 5% (each year) and 10% (every 5 years) increasing term options across its plans. Add to this HDFC’s credibility over its Claim Settlement Ratio, Amount Settlement Ratio, and complaint volume, and you have an excellent pick for a term insurer.
Plans offered by HDFC: Click2Protect Life, Click2Protect Super, and Click2Protect 3D Plus
2. Max Life - Max Life only offers a 5% year-on-year increase in term insurance coverage options across its policies. However, the mere availability of this option is an excellent sign for its existing and potential policyholders. Additionally, the insurer also has excellent data across its credibility metrics -
Plans offered by Max Life: Max Life Smart Term Plan, Max Life Online Term Plan Plus, and Max Life Smart Secure Plus Plan
Conclusion
Increasing term insurance is an excellent perk in your plan, provided you remember to request it while applying for your term insurance plan. However, please know that term insurance plans are usually pretty pocket-friendly. Still, if you opt to increase your term insurance, you will indeed be looking at some substantially spiked premiums. This will eventually prove to be a financial burden. Thus, looking into a free calculator when computing your ideal term insurance coverage is best, and then approaching an expert to verify that you are making the right financial move.
