Generally, in a term insurance plan, you settle upon the maximum amount of sum that you will require upon retirement. However, given the changing market dynamics, increasing cost of inflation, individual liabilities and financial goals, the sum assured can not remain constant. Therefore, a plan compensating these changes should be formulated. For this purpose, increases in a term insurance plan are necessary. Each year, the sum assured increases initially by a certain amount. Another major factor that contributes to increment is your health. For instance, if your health deteriorated over the years, your typical term insurance plan will be increased according to your estimated life. Following are some features of increasing term insurance plan:
Total sum assured while commencing initial plan, increases annually. But the arrangements of such an increment varies from plan to plan. Some plan places a limit upon maximum increment allowed in sum assured – while the tenure continues, increment stops after settled time. The amount of increment assured can be expressed as an absolute amount or a percentage. In either case, the rate of increment will be notified beforehand. If a certain percentage carries out increment, an increase takes place either at a compound rate or at a simple rate. Typically, it happens at a simple rate.
Although the coverage amounts changes because of several intervening variables, however, throughout the plan, the premium usually remains constant or uniform. Typically, premiums paid in the initial years of the plan are higher than those paid in later years to compensate for increasing rates in coverage smoothly. Understandably, premiums charged in an increasing terms insurance plan are higher than those charged in usual or decreasing term insurance plans.
An increasing term insurance plan pays death benefits exactly like a normal term insurance plan. Usually, an increasing term insurance plan pays the entire amount of death benefit upon the insured’s death. However, the latest plans advocate a different policy that pays a death benefit in parts, as in monthly or annually incomes, for a certain time or tenure after the death.
Riders increase the scope of coverage. They are opted by paying an additional premium. Riders available in most increasing term insurance plans include accidental death and disability benefit rider, critical illness rider and waiver of premium rider.
How does an Increasing Term Insurance Plan work?
For instance, suppose Max, aged 50, purchases an increasing term insurance plan for a sum assured of 18266.94$. He opts for this plan for 40 years, and it allows a 200% maximum increase in original sum assured and a 5% increase in sample rate.
Sum assured would increase as following during the planned tenure:
|POLICY TERM||APPLICABLE SUM ASSURED|
|Year 21 onwards till Year 40||30444.90$|
From the 22nd year of the policy, there would be no further increment in assured sum because the maximum increase allowed was up to 304449 $. And that has been achieved in the 21st policy year. Therefore, if max died in year 18, his death benefit would be 28618.21 $, and if he died at year 21, 12177.96$ would be paid as sum assured.
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Why you should opt for an Increasing Term Insurance Plan:
Foremost, an increasing term insurance plan is your cover again, increasing inflation. Since the rate of inflation is going to increase annually, thus coverage that can beat the negative implications of inflation is necessary. Increasing term insurance plan with its gradual but steady approach to increment maintain that balance effectively and help your family take care of heft expenses easily. Secondly, it assists in fulfilling increased financial requirements. With years, decades and age, your financial needs increase exponentially. As your requirement grows, so shall your amount of your sum assured. Therefore, increasing the term insurance plan helps meet your growing financial requirements and creates an efficient retirement fund by increasing your coverage over the years. Thirdly, it is a relatively affordable plan that doesn’t come with expensive premiums. Instead, the rate of premiums usually remains constant throughout the plan. Lastly, all arrangements offered by the plan are tax-free, from premiums (up to 91334.70$ in a single financial year) that you pay to death benefits that you receive are all tax-free.
When to opt for an Increasing Term Insurance Plan:
If you’re bothered about your increasing responsibilities, rate of inflation in the market and expect them both to only increase further in the coming years, increasing term insurance plan is what you should opt for. An increase in sum assured under the plan can take care of your increasing responsibilities in future. A handful of increasing term insurance plans are available in the USA market, such as AIG life insurance policies, Mutual of omaha and Great western life insurance company.