What is Incremental Term Life Insurance Policy?

When you start the process of buying a term insurance policy, it requires a lot of careful thought and consideration. One of the most crucial steps is to calculate the coverage amount your family would need based on your current income as well as their needs and current circumstances.

But, as a matter of fact, your financial responsibilities tend to increase as you age. You might get married, have children, buy a house, and face expenses like education and marriage for your kids. So, there is a likelihood the cover amount you choose today may not be enough for your entire life, especially when you purchase the plan at a younger age.

And, most term insurance policies available today don't offer an easy way to adapt to these changes in your lifestyle and expenses.

Some policies do offer a lifestage benefit, a feature in term insurance that helps you increase your sum assured at various key stages of your life. However, it does come with certain caveats like higher premiums during upgrades, etc.

Or you can buy a brand-new policy, but this approach also has its own set of downsides - you'll need to repeat the paperwork process, there's a possibility of your upgrade request being denied due to factors like age factor or health issues occurred later on in life. Further, managing multiple policies can be complex, especially for your nominee when it comes to making claims.

To avoid all these complexities, you have another option - Incremental Term Life Insurance. What is Incremental Term Life insurance? How does It work? Let’s get the answers to these questions and more in this article!

What Is an Incremental Term Insurance Policy?

An Incremental Term Life Insurance Policy, as the name suggests, is a type of term insurance policy in which your coverage will steadily increase as time goes on until it reaches a maximum limit. It is also called term insurance with the increasing cover option.

Here’s an example to help you understand how an Incremental Term Life Insurance Policy works. Eg:- Maheep, a 25-year-old female, buys an incremental term insurance policy with a sum assured of Rs. 1 crore and a policy duration of 30 years. Her cover will keep on increasing automatically by 5% every year up to a maximum of 2X base cover. As per the policy conditions, the coverage will increase from the 6th policy year.

Here’s how her cover will increase -

After the 25th year of the policy, the sum assured will no longer increase because it reaches the maximum allowed limit of Rs 2 Crores i.e 2X the base cover amount. If Maheep passes away while the plan is still in force, her nominee will receive the sum assured applicable in that particular year.

Why Go For An Incremental Term Life Insurance Policy?

Here are some reasons why Incremental Term Life Insurance is a worthwhile choice -

1. Offers Uniform Premiums

Your term insurance coverage gradually grows over time while your premium payments remain consistent throughout the entire policy. This means you won't encounter unexpected financial burdens.

2. No Need For Additional Documentation or Medical Tests

When you opt for an Incremental Term Life Insurance Policy, your term insurance cover amount will automatically grow over time. The best part is that you won't have to deal with the hassle of additional documentation or undergoing additional medical checkups.

3. There Is No Risk Of Rejection

When you opt for manual upgrades, there's a genuine concern about the possibility of your proposal being turned down due to age or health reasons. Conversely, with an Incremental Term Life Insurance Policy, you can rest easy knowing that you won't face rejection because of higher age or poor health. This offers a sense of security, ensuring that your term insurance coverage remains intact, regardless of changes in your circumstances or well-being.

4. Promises Inflation-Proof Coverage

Opting for an Incremental Term Life Insurance Policy can be a smart move to stay ahead of inflation. This means your coverage keeps pace with the rising living costs, ensuring your loved ones are always protected.

5. Management Is Easier

When you choose an Incremental Term Life Insurance Policy, you can avoid the need to purchase additional policies to increase your coverage. This means you can enjoy the convenience of managing and paying premiums for just one policy,

6. Single Claim Settlement Process

Your family will go through only a single seamless claim settlement process - sparing them from any unnecessary hassles.

Some Important Things!

Here are some things about Incremental Term Life Insurance Policy you need to keep an eye on -

1. The Cover Won’t Go Up Immediately

With an Incremental Term Life Insurance Policy, your coverage amount begins to grow after a certain number of years, such as 1 year, 5 years, and so forth. This increase doesn't kick in immediately from the start.

2. There Is A Maximum Increase Limit

Insurance companies typically set a cap on how much your coverage can increase with an Incremental Term Life Insurance Policy, which can either be -

● Multiple of the base cover: Your coverage grows annually, usually by 5%, 8%, or 10%, or any other percentage, until it reaches a maximum of 2 times your initial sum assured. ● Fixed percentage throughout the policy term: Your sum assured increases by a set percentage, typically 5% or 10%, each year until the end of your policy term. ● Fixed percentage up to a specific age: Your term cover increases at a fixed rate, say 5%, each year until you reach a certain age, say 55.

3. Premiums Can Be Higher

The premiums for an Incremental Term Life Insurance Policy may be higher than a regular term plan without this feature. But, a careful review of the total premiums you pay over the policy's duration, considering their present value, reveals that these plans are a genuinely cost-efficient choice in the long run.

Note: The T&Cs may vary across policies.

Wrapping up!

Choosing Incremental Term Insurance is a wise way to ensure your family's ongoing protection throughout the policy term, all while maintaining affordable premiums. What's even more appealing is how smoothly it works - no extra formalities, medical tests, or paperwork needed. With such a plan in place, you can ensure that your loved ones are always protected – no matter what.