April 5, 2021
The financial responsibilities of an individual go through significant changes during the lifetime. Consider a person who has just started earning and another who is nearing retirement, and you will find major differences in their investment plans. However, it is safe to say that the need for life insurance plans remains the same throughout their life.
At the same time, it is crucial to acknowledge that life insurance plans get affected by evolving financial responsibilities. The best life insurance plan at the age of 3o may not be equally relevant when nearing retirement. When you think in terms of the adequate coverage amount from life insurance plans, it may not be the same at a later life stage.
When you are old, buying new life insurance plans may not be the best choice since it can be relatively heavier on your pocket. So, how do you manage the life cover with growing financial responsibilities? A solution to this problem may be opting for an increasing life cover.
As you may know, there are several types of life insurance plans available today to cater to diverse financial profiles. An increasing life cover is an option that can keep the life insurance plans viable for a long time. Let’s understand how it works in detail.
Increasing Life Cover in Life Insurance Plans
A standard type of term insurance offers a death benefit to the insured’s family. It is an affordable option to remain protected for an extended period. Increasing term insurance is a variant where the sum assured grows with time.
As suggested by the name, these life insurance cover in these plans is designed to increase over time and adjust the value accordingly. When people choose life insurance coverage, they estimate the adequate life cover amount to purchase the best life insurance plan for their family.
Since life insurance plans are long-term financial security instruments, the cover amount is also impacted by certain economic factors. For instance, the impact of inflation might render the sum assured insufficient in a time of financial emergency. By the time there is a need for life insurance compensation, the cost of living may also have increased considerably.
When you have an increasing life cover, the chosen sum assured increases each year by a specified percentage. It is important to note that the premium rate for these life insurance plans may or may not remain the same through the policy tenure.
Here’s an example of how increasing term insurance works:
Mr. Batra purchases a plan with increasing life cover at the age of 35. The chosen sum assured for the plan is Rs. 35 lakhs. He has arrived at this number by carefully assessing his financial obligations and goals within the policy tenure. Considering these personal factors, this is the best life insurance plan for his family’s well-being at the time.
Under this policy, the sum assured will grow by 5% each year. If he buys the plan on January 5th, 2021, then the sum assured by the next policy anniversary will have increased to Rs. 36.75 lakhs.
With each passing year, the coverage amount will keep increasing by 5% of the previous amount. Eventually, it will reach twice the original sum assured if the policy term is long enough.
Let’s look at the reasons why increasing life insurance plans can be ideal for managing the changing financial responsibilities:
1.Achieve Changing Life Goals
At different life stages, the significant goals in an individual’s life can vary. The way you had envisioned your life at a younger age may not be the same after a few years. For instance, after the birth of a child, the financial responsibilities are likely to transform substantially.
The insurance market in India was expected to account for 35% of total savings by 2020. Evidently, insurance plans have become a crucial addition to a financial plan followed by every individual. With an increasing life insurance plan, you can remain confident that the investment will be useful under changing circumstances.
2.Maintain Standard of Living
The coverage from an increasing life insurance plan ensures that your family can cover their expenses in your absence comfortably. As the cost of living will likely be more in the coming years, you can rest assured that they will stay financially independent even when you are not around.
3. Comprehensive Protection
You can also attach riders to life insurance plans to enhance their scope of coverage. The best life insurance plan has different meanings for each person. Riders are convenient options to personalize these benefits. Some common riders with life insurance plans are critical illness rider, waiver of premium rider, accidental death and disability rider.
Along with these advantages,the tax benefits with life insurance plan are also helpful in handling your financial plan. With the tax benefits, you can enjoy the life cover for a long time without burdening your income severely.