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How you can increase your term insurance cover amount

You can buy a new term policy or choose the increasing cover option with your existing insurer.

February 25, 2021 / 10:39 AM IST

When you invest in a term insurance plan, your intention would be to leave a sufficient amount of money for your family in case you die before you fulfil all your financial obligations. To arrive at the right sum assured, you must calculate how much you would need for completing all your responsibilities (children's education, weddings etc.), paying off all your loans (including guarantees you've provided on business loans) and supporting your family’s current lifestyle in the long term.

In addition to these aspects, there is inflation. The original sum assured that you calculated so meticulously might not be enough for your family's needs.

So what should you do? Here’s help.

Option 1: You can upgrade your cover by buying a new policy

One way to upgrade your term insurance is buying a new policy altogether. You will have to go through the whole documentation process again, and undergo new medical tests. Given that you'll be older (and might have new health condition), there are chances that your upgrade could be very expensive. In the worst case, the upgrade policy might even get rejected due to age or health-related reasons.

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In addition to the challenges you face managing two separate policies, your family members, too, will face their share of difficulties in going through the claims process twice.  They will have to submit two sets of documentation and follow-up with both insurers separately - while grieving your loss.

This whole equation could get very tedious and messy. So - what other options do you have?

Option 2: You can choose the increasing cover option

Instead of going through all the complexities of multiple policies, you can purchase term insurance with an increasing cover feature. As the name suggests, your cover amount will keep increasing gradually with time – until it reaches a maximum limit.

Neither will you have to undergo any new medical tests nor is there a risk of your upgrade getting rejected. The policy will systematically upgrade without you having to intervene every time.

Here are some benefits of choosing an increasing cover option.

One premium: With a manual upgrade, you purchase a fresh policy by paying an additional premium that’ll depend on your age and the then prevalent health status. Throughout the term, you will continue to pay two premiums. With an increasing cover, on the other hand – you will only have a single policy and a single premium, lifelong.

Automatic increase: When you manually upgrade, you’ll need to submit documents, sign new declarations, and undergo new medical tests, etc. Further, there could be additional terms and conditions that will be applicable too. However, in increasing covers, no new forms, documents, declarations or medical tests will be required. There won’t be any additional terms and conditions that you will have to sign to increase your sum assured. It is just done, automatically.

No risk of rejection: If you decide to manually upgrade your policy when you're older, there is a chance that you’ll have to pay hefty additional premiums for a higher age and any medical condition or disease you get during these years. There is also the risk of the proposal being rejected due to higher age or poor health. With increasing covers, however, you won’t have to worry about paying additional premiums or the policy getting rejected.

Are there different types of increasing covers?

Based on the insurer, there are many increasing cover options available in the market. You can choose the cover that is suitable for you, based on the percentage increase, the maximum cover you’re aiming for, or an end-age.

Every insurer offers different modes of increasing covers. Here are some examples:

-Increase of 5 percent / 8 percent / 10 percent per year till your cover becomes 2x.

-Increase of 5 percent / 10 percent every year till your policy term ends.

-Increase of 5 percent every year till you reach the age of 55.

If you wish to take an increasing cover option to just counter inflation, you can simply pick a policy with a rate of increase that matches the estimated inflation rate. The good thing is that your premiums do not rise at par with inflation.

Conclusion

Overall, you can see how choosing the increasing cover option while buying term insurance might be better for easy management of your term insurance plan, as well as easy management of the claim by your family. It is hassle-free, automatic and doesn't require you to go through any medical tests or submit any new documentation. All this while ensuring that your family has sufficient cover throughout the policy term.

We strongly recommend that you choose an increasing cover option when you buy your term insurance plan.
Mahavir Chopra is the founder, Beshak.org, a consumer awareness platform for insurance
first published: Feb 25, 2021 10:39 am

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