Ch. 21: Life Stage Benefit

Term insurance is one of the best ways to ensure your family will have financial protection should something happen to you. It will pay a fixed sum of money to your family if you pass away while the policy is active. Your family can use this money to cover their expenditures.

Now, the sum assured you choose while buying the term insurance remains the same throughout the policy tenure. Your duties and responsibilities, however, are likely to rise as you grow. You will get married, have kids, buy a house, and so on. As a result, the sum assured you selected while buying the term plan may not be sufficient for your family in the future. Hence, you will need to upgrade your term insurance cover, as and when your responsibilities grow.

One of the ways through which you can upgrade your term cover is the Life Stage Benefit. What is the Life Stage Benefit? How does it work? How can it benefit you? Are there any drawbacks?

Let’s find out!

What is a Life Stage Benefit? How does it work?

Life Stage Benefit is a feature in term insurance that helps you increase your sum assured at several life stages or milestones in life.

These life stages are predetermined by the insurance company. Getting married, having children, taking a loan, etc. are some things that count as a ‘life stage’. You’ll have to ask the insurer to increase your sum assured when you reach a life stage. The insurer, in return, may ask you to pay an additional premium. The upgrade sum assured will be applicable under your policy from the next policy anniversary.

Advantages of Life Stage Benefit

• Hassle-free process You can opt for the Life Stage Benefit feature at the time of buying the term insurance policy. All you need to do is put a tick in a box while filling your term insurance proposal form and wait until the life stage to upgrade your sum assured.
  
• Very less paperwork needed When you opt for the Life Stage Benefit feature, you won’t need to submit any additional paperwork - except for a proof of the milestone/ life stage. For instance, the marriage certificate, child’s birth certificate, etc.
  
• No additional medical tests required You won’t have to undergo any additional medical checkups beyond the ones you undergo at the time of buying the term insurance.
  
• Underwriting will remain the same There will not be any changes in the underwriting of the policy. The underwriting for your base term insurance cover will continue for the increased cover as well.
  
• Single policy, single claim Since this feature allows you to upgrade your existing policy, you will have to manage just one policy. And in case you pass away while the policy is in force, your family will need to go through a single claim settlement process only.
  

Drawbacks of Life Stage Benefit

Here are some drawbacks of the Life Stage Benefit feature -

• Maximum limit The insurer may impose a limit up to which you can upgrade your sum assured at every milestone. Some insurers, for example, limit the maximum increase to 50% of the base sum assured. Other insurers may allow a maximum of a 100% increase.
  It is important to be aware of such limits so that there are no surprises at the time of the upgrade.
  
• Increase in premium amount Every time you upgrade your policy cover, there will be a change in your premium amount. The insurer will charge a higher premium based on -

1. The remaining policy tenure
2. Your age at the time of the upgrade.
3. The sum assured band of the new total sum assured. (New total sum assured = Base sum assured + Life Stage Benefit).

So, you’ll have to pay a higher premium every time you upgrade your term insurance cover amount.

• Only available for standard lives The Life Stage Benefit feature is only available for those who qualify as a ‘Standard Life’. Meaning, you’ll be able to opt for this feature only if the insurer issues you the policy at a standard rate, without any additional premiums.
• Waiting period You won’t be able to upgrade your cover immediately after buying the policy. You may have to serve a waiting period, i.e., a specific period of time. After the waiting period is over, you’ll be allowed to increase your term cover.

Conditions/Restrictions under the Life Stage Benefit feature

In addition to the above drawbacks, there might also be restrictions based on -
• Age You can only opt for the Life Stage Benefit feature until a certain age specified by the insurance company.
• Features If you choose the Life Stage Benefit feature, you won’t be able to opt for other features with your term insurance, like limited pay, increasing cover, monthly income claim payout option, etc.
• Riders Some insurers won’t allow you to opt for certain riders with your base policy if you choose the Life Stage Benefit feature.
• Premium payments remaining Some insurers may demand that you have a specific number of premium payments left under your policy before you upgrade your cover.
• Policy years left Some insurers will allow you to apply for an upgrade only if you have a specific number of policy years remaining under the plan.

Other options to upgrade your term insurance cover

You can also choose to upgrade your term insurance cover manually or opt for the increasing cover feature, where your sum assured will increase automatically at specific intervals.

Life Stage Benefit Vs. Manual Upgrades

Let’s learn about the differences between upgrading your policy manually and upgrading it under the life stage benefit feature.

Life Stage Benefit Vs. Increasing Cover

Let’s learn about the differences between the life stage benefit and increasing cover feature in term insurance.

Comparison of features across Life Stage Benefit, Increasing Cover & Manual Upgrades

What is the process of upgrading the term cover using a Life Stage Benefit?

1. The first step is informing the insurer. If you want to opt for the Life Stage Benefit feature along with your term insurance, you’ll have to inform the insurer about it at the time of purchase.
2. Next, every time you reach a milestone/life stage, you’ll have to notify the insurer within 6 or 12 months of the life stage event. You’ll also have to submit proof documents related to the life stage event to apply for an upgrade.
3. Once this is done, the updated sum assured will be effective from your next policy anniversary.
4. When your sum assured gets upgraded, your premium will rise accordingly as well.
5. Some insurers allow you to apply for an upgrade on your 45th or 50th birthday - in addition to your life’s milestones.

Wrapping up!

That is all about the Life Stage Benefit feature in term insurance. While the Life Stage benefit feature allows you to upgrade your base cover at important milestones in your life, it comes with a lot of restrictions. So, if you’re opting for it with your base term plan, ensure you’re aware of all these restrictions.