If you buy an incremental term insurance plan vs a normal term insurance, in that case, you pay a higher premium every year.
Our financial situation is dynamic which keeps changing every year with our lifestyle and age. Also, the rate of inflation necessitates a higher level of coverage in later years of life. Therefore, to estimate the correct amount of sum assured, you should ideally go for incremental term insurance plan instead of a basic one.
In the accompanying video, Naval Goel, CEO, PolicyX.com explains how incremental term insurance plan helps you get better sum assured over a period of time and how it is different from basic term policy. Here are excerpts:
How term insurance is different from other life insurance plans
A term insurance is a pure form of insurance where the sum assured is given to a nominee if something happens to the insured member. Usually, in India, insurance plans are compared to investment plan where you get money if nothing happens to you and also there is a sum assured attached and if something happens to you, you get a certain amount. But, in term insurance you get the entire sum assured only when something happens to the insured member and you also get a large coverage paying a small premium amount. A 30-year-old can get a sum assured of Rs 1 Crore by paying a premium of only Rs 10,000. This means that it’s a pure protection plan.
How is incremental insurance plan different from basic term insurance plan?
Due to inflation if we buy a term insurance of Rs 1 Crore today that sum assured might not be enough 5 or 10 years down the line. A term insurance is a 20-30 years contract. So you would want to protect your family in case something happens and you want to give them sufficient coverage so that is where incremental term insurance comes into the picture. Here sum assured increases every year by some percentage which can be increased roughly around 10 percent every year. In such case, the family is protected through the rising inflation rate as well.
Does the premium amount also increases?
Term insurance as a concept - the premium remains the same throughout the tenure but, if you buy an incremental term insurance plan vs a normal term insurance then, in that case, you pay a higher premium every year. However, the overall premium remains the same throughout the policy term.
When should one buy incremental term insurance plan?
Usually, anybody who starts earning and who has a family should buy a term insurance. Anybody who has a liability or family is dependent on his/her income should buy a term plan. A term plan covers the family against risks such as accident and illness that can lead to the insured’s death.
What types of riders are available on these term insurance plan?
There are multiple riders available like critical illness rider which covers the critical illness and accidental death benefit rider. So, if somebody meets with an accident, their family gets a double sum assured. There are other kinds of riders also available like waver of premium where the premium is waived off. There are multiple riders available which just enhance the base product and gives you more coverage. Moreover, these riders are similar for the incremental term insurance plans.
How should people avail tax benefit?Usually, the Section 80C benefit on Income Tax is available to all taxpayers which can be opted through buying term plans as well. To create an optimum insurance portfolio, one should buy a term plan along with ULIPs to make the maximum use of the Rs 1.5 lakh tax benefit in a financial year.