What is Increasing Term Life Insurance?

What is Increasing Term Life Insurance ? The Increasing Term Life Insurance Plan is a hedge against increasing liabilities and lifestyle. It is a term life insurance plan wherein the sum assured keeps increasing as the policy period proceeds. The premium at which the value increases is pre-determined and so is the premium. Life Insurance policies can do this as they have a Level premium concept, whereby the premium is pre-determined for the entire policy tenure. Thus, even though the sum assured Increases, the premium remains constant throughout the policy. An Increasing term plan is usually bought to protect the family members against Inflation and provide a security against rising liabilities and lifestyle.

How does an Increasing Term Plan work?

In an Increasing term plan, the sum assured or the death benefit rises throughout the policy period, maybe till a threshold limit and then remains constant. This varies from policy to policy and also on the policy tenure chosen at the time of policy inception. This is because such a plan is normally bought to protect one against inflation. So as with time you pay premium and the policy proceeds, the coverage for the life insured rises.

Let us understand this with an example. Rajesh opts for an Increasing term Plan for Rs. 50 lacs for 30 years. He has to pay Rs. 10,000 every month (and Rs. 1,20,000 annually) as the premium and the policy coverage till rise by 5% every year upto a maximum of 100% in 20 years and then remain constant for the next 10 years.

As a result, his term plan’s face value also Increases by Rs. 1,20,000 every year. By the end of the term (which is equivalent to the loan period, i.e. 30 years), the face value will reach double the initial Sum Assured. However, if he happens to die during the tenure of the policy, his nominees will receives the corresponding  sum assured and the policy terminates.