When it comes to protecting your family’s financial future, term insurance is one of the most straightforward and cost-effective solutions available. But with rising living costs and evolving responsibilities, a fixed cover might not always keep up. That’s where increasing term insurance comes in; a plan designed to grow with you, offering enhanced protection over time.
Let’s unpack how it works, who it’s best suited for, and why it may be a more practical choice in the existing financial landscape.
What is Increasing Term Insurance?
Increasing term insurance is a type of life insurance where the sum assured increases at a fixed rate throughout the policy term, annually. Unlike traditional pure term insurance plans, where the cover remains constant, this plan is designed to tackle inflation and growing financial obligations.
Let’s say you buy a policy with a cover of ₹50 lakh. Under an increasing term plan, this cover might go up by 5% or 10% every year, depending on the insurer’s structure. Over a 20–30-year policy term, that increase becomes significant, without the need to purchase a new policy.
How Does It Work?
The structure is simple. You choose a base sum assured, and the insurance company increases it by a set percentage each policy year. The premium remains fixed or increases slightly, depending on the insurer.
Benefits of Increasing Term Insurance
Inflation Protection
One of the biggest risks to fixed cover plans is inflation. ₹1 crore today won’t have the same value 20 years from now. With an increasing term plan, your coverage stays relevant.
Grows with Responsibilities
Your financial responsibilities tend to grow as you age—children’s education, home loans, retirement planning. This plan adapts automatically to such life changes.
No Reassessment Needed
Unlike buying a new policy or increasing coverage mid-term, increasing term insurance doesn’t require medical reassessment or new documentation every year.
Affordability
You can start with a relatively low premium and modest cover, say ₹25 lakh term insurance, and let it grow over time. This works well for young earners who expect a salary increase in the coming years.
Tax Benefits**
Like other life insurance plans, increasing term insurance qualifies for tax deductions under Section 80C and Section 10(10D) of the Income Tax Act.
Who Should Consider an Increasing Term Insurance Plan?
While increasing term insurance can suit almost anyone, it’s particularly beneficial for:
- Young professionals in their 20s and 30s with rising income trajectories.
- Newly married individuals planning to start a family.
- Parents aiming to cover future education and lifestyle costs.
- Homebuyers with long-term loans.
- HNIs (High Net-worth Individuals) those looking for scalable cover as part of a term insurance plan.
Key Differences: Increasing vs Decreasing Term Insurance
It's useful to understand the contrast between increasing term insurance and decreasing term insurance, as both serve very different purposes.
Feature
| Increasing Term Insurance
| Decreasing Term Insurance
|
Coverage
| Increases annually
| Decreases annually
|
Ideal For
| Growing responsibilities
| Reducing liabilities like loans
|
Premium
| Usually fixed or slightly increasing
| Generally lower
|
Use Case
| Long-term family security
| Mortgage or loan protection
|
A decreasing term plan is often chosen to cover specific liabilities like home loans, where the outstanding amount reduces over time. On the other hand, increasing term insurance is built for evolving life stages and future financial growth.
Things to Keep in Mind
Before opting for an increasing term insurance plan, consider the following:
Premium Impact
While the starting premium may be similar to a regular term plan, it could be slightly higher due to the rising cover. However, the value it brings over the long term usually outweighs the cost.
Cap on Coverage
Many insurers set a cap on the total sum assured (for example, 2 or 3 times the base amount). So, if you begin with a ₹1 crore term insurance, your maximum benefit could be ₹2 or ₹3 crore over time.
Frequency and Rate of Increase
Look into how often the cover increases and by what percentage. Common increments are between 5% to 10% per annum.
Entry Age and Eligibility
Eligibility varies slightly among insurers. However, the eligibility criteria for buying term insurance generally includes:
- Minimum age: 18 years
- Maximum age: 65–70 years
- Policy term: Up to 40 years
- Medical assessment: Based on age, sum assured, and health history
You may also need to meet financial underwriting requirements, especially if applying for high covers like ₹1 crore term insurance or as part of a term insurance plan for HNIs.
Is It Better Than a Pure Term Insurance Plan?
A pure term insurance plan offers a fixed cover at a fixed premium—making it predictable and simple. If your financial responsibilities are unlikely to change significantly, or if you want a no-frills policy, this could be enough.
However, if you're early in your career or foresee substantial changes in your income and responsibilities, an increasing term plan gives you future-ready protection. It eliminates the need to buy new policies as your needs grow.
Final Thoughts
An increasing term insurance plan is more than just a smart financial product—it’s a way of planning ahead without locking yourself into fixed limits. It accounts for life’s evolving demands, giving you the confidence that your family’s financial cushion will grow as your world expands.
Whether you’re starting with a small amount or looking to upgrade to a more expensive plan, an increasing term insurance plan helps you do it steadily and strategically. It’s flexible, practical, and future-facing—exactly what modern insurance should be.
** Tax exemptions are as per applicable tax laws from time to time.
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