What Are Incremental Term Insurance Plans?

Term insurance is a pure life policy and is a popular choice amongst several policyholders. If you want to secure the future of your loved ones without having to pay hefty premiums, this is probably the one. This is because term insurance provides life cover for a fixed period and their premiums are quite affordable. You can get a huge financial cover by paying lower premiums compared to other types of life insurance. This ensures that in your absence, there is a sufficient amount of sum assured for your loved ones. 

Once you have selected a sum coverage estimating your plans, you may realise over the years that your sum assured may not be sufficient. With the rising inflation, developing lifestyle, or additional debt, you may require more coverage than the one you selected while buying term insurance. With the rising expenses and lifestyle upgrades, several policyholders find themselves in this scenario. Their solution to this is buying incremental term insurance instead of a regular one. 

Meaning of incremental term plan

Incremental term insurance is a type of term insurance. In incremental term insurance, as the tenure of your policy increases, so does its coverage. This ensures that by considering inflation and the recent developments, your loved ones never fall short of funds in your absence. Whereas, having a fixed cover may lead to the sum assured depreciating over the years and may not be enough to take care of your dependents. This is the reason that in today’s growing world, individuals prefer to buy an increasing term plan instead of a regular one. 

With the incremental term plan, your coverage increases by some percentage at the end of each policy year as agreed upon in the policy. Since the coverage of your policy rises over the years, the premiums of incremental plans are higher than that of regular plans. This is because even though your coverage is increasing over the years, your premium amount will remain the same. You can use a term plan calculator to estimate the coverage increase and the premiums that you have to pay accordingly. 

Perks of buying incremental term insurance

Incremental-term insurance plans are designed for the modern ever-changing, ever-growing world. Here are some advantages you get when you buy one:

Pocket-friendliness 

Term insurance plans are known for their extremely affordable premiums and the case is no different with increasing term plans. Even though your sum assured increases over the years, the premiums remain as it is.

Protects loved ones

Usually, people buy term insurance when they work, and the coverage is enough for their initial years. However, when they start a family, their responsibilities increase. This leads to a dramatic rise in expenses and even liabilities sometimes. It is only rational then to increase your sum assured under your current life. With an incremental term plan and an elevation of your lifestyle, your coverage is on par, too. You can use a term plan calculator to calculate your needs before buying the plan. 

Helps fight inflation

The sum assured that you have selected may not be enough for your family years later. This is because over the years, with inflation, the value of the rupee diminishes. Increasing term insurance considers rising inflation and ensures that your loved ones are not affected by it in your absence. With your sum assured increasing every year, you are protected from inflation and will be having sufficient funds to take care of your family’s needs. 

Saves taxes 

With an incremental term plan similar to any term insurance, you enjoy several tax exemptions. The premiums that you pay for it are exempt from taxes under Section 80C of the Income Tax Act, 1961. The sum assured that your nominee receives is also subjected to exemptions according to Section 10 (10D) of the Income Tax Act, 1981.  

Incremental term insurance has several advantages that you can enjoy as a policyholder. It is an ideal type of life insurance for those individuals who know that their responsibilities will grow as they age. It is always recommended for young individuals as they can get the plan at an affordable premium.