Why term insurance premium rates are cheaper for higher sums assured

Why the cost per unit of coverage for term plans with higher sums assured is cheaper

Insurance decisions often boil down to two key questions: how much coverage you need and how much can you afford. While it is common knowledge that higher insurance coverage is better, consumers usually end up assuming that it also means a heftier price tag. The reality, however, is that term insurance plans in India rank among the most cost-effective ones across the world.

What if you could actually save more by going for a higher coverage? That’s exactly how term plans are designed where the increase in coverage is followed by a non-linear increase in premium.

This is redefining how individuals approach term insurance purchase, making it not just a protective measure but a financially savvy decision as well. As inflation continues to clock upward, the case for opting for a higher sum assured becomes all the more compelling.

Also, if you are someone with significant assets, chances are your family will have more outstanding liabilities in your absence. To ensure a safe and secure future, a term insurance with higher coverage is the need of the hour. The good news is you don’t have to pay proportionately high to afford it. Here’s how.

Also read: Term insurance: A delay in buying can cost you dearly

Affordability in term insurance

Term insurance is often lauded for its simplicity and affordability. It provides a straightforward way to secure financial protection for your family in the event of your untimely demise. What’s less commonly known, however, is how the pricing structure of term insurance can work in your favour, especially when you opt for a higher sum assured.

Premiums don’t increase in direct proportion to the coverage amount here. For instance, a 30-year-old non-smoking male might pay Rs 1,281 per month for a Rs 1.5 crore cover, but he only needs to pay Rs 1,532 per month to elevate that cover to Rs 2 crore. While the coverage increases by over 33 per cent, the premium only goes up by 19 per cent. This non-linear increase means that the cost per unit of coverage decreases as the sum assured increases. Essentially, the more you invest in your policy, there is more value for every penny you spend.

Also read: How to avoid falling prey to life insurance mis-selling traps

Battling inflation and liabilities with higher coverage

The pace of inflation often ends up eroding the value of money. So, even if a coverage of Rs 50 lakh seems enough for now, one needs to bear in mind that 5-10 years down the line, it won’t suffice. What seems like sufficient coverage today may not hold the same value in a decade or two. Coupled with rising living costs and potential outstanding liabilities, including mortgages, loans, and education expenses, the importance of securing a higher sum assured becomes clearer.

For high net-worth individuals (HNIs), this issue is even more pertinent. Higher the financial worth, higher needs to be the coverage to help your dependents in your absence. A higher sum assured in a term insurance policy will provide the financial cushion your family needs, especially when you can no longer take care of their needs.

Moreover, a high-cover term insurance policy offers peace of mind, knowing that even in the face of economic challenges or unforeseen events, your family’s financial future is secure. This is especially critical for those with significant liabilities, where the loss of an income earner could have far-reaching implications.

Lastly, with the modern features now available in term plans, you are investing in a product that offers flexibility, comprehensive protection, and peace of mind, ensuring that your policy continues to serve your needs long into the future. Whether you are an individual looking to safeguard your family’s future or an HNI with complex financial needs, a high-cover term insurance policy is a smart, strategic and financially sound decision.