How do you determine the optimal level of sum assured for your term insurance plan?
You will calculate your income, expenses, liabilities, and future financial goals. However, all these parameters are dynamic in nature and keep changing with time. Inflation further adds to the cost of living, thus making it difficult to estimate the right amount of sum assured for your term plan coverage. What you consider sufficient today, may not be enough tomorrow. There is no guarantee that your term plan will cover all your family’s expenses at the time of maturity.
To ensure that your family gets sufficient coverage from your term plan, there are ways to increase the coverage in your term life insurance policy.
How To Increase Your Term Insurance Cover?
Buy another policy -
To upgrade your term insurance cover you can buy another policy with a higher cover, but you will have to go through the entire process all over again right from searching plans, comparing, shortlisting and finally documentation. You will also have to undergo medical tests again. Higher coverage comes at a higher cost plus there may be chances of rejection due to age or certain health factors.
Another factor to consider is maintaining two separate term insurance policies is cumbersome as your family will have to file two claims and will have to do the follow-up twice which will practically be very difficult.
Add riders to your existing policy -
You can add riders to your existing policy for extra coverage by paying a little high premium. Some most common riders include:
- Critical illness cover - This rider provides additional coverage in case a critical illness is diagnosed. The nominee gets the additional amount. Insurers have a list of critical illnesses which they cover.
- Accidental death benefit - Under this rider, the nominee receives additional benefits if the policyholder dies due to an accident.
- Waiver of premium - This rider waives off the remaining premiums if a predefined event occurs and the nominee receives the cover without paying the premium.
- Accidental disability rider - If a policyholder is disabled due to an accident, this rider provides additional benefits to the nominee.
- Income rider - This rider offers a fixed sum as income to the nominee, in case the policyholder dies during the policy term.
- Accelerated death benefit rider - This rider provides additional financial protection in specified events, in addition to the plan benefits, in case the policyholder dies due to a predefined condition.
Buy an increasing cover term insurance -
In an increasing cover term insurance, the sum assured increases every year. However, the premium remains unchanged throughout the tenure of the policy. There are no additional documents or terms and conditions required to increase your sum assured. There are a variety of increasing cover options available. You can choose one that suits you and fulfils your requirements. Following are the increasing cover options offered by the insurers;
- An increase of 5% / 8%/ 10% per year till the sum assured becomes double.
- An increase of 5% / 10% per year till the tenure of the policy.
- An increase of 5% per year till the age of 55.
Life-Stage Growth Term Insurance -
This kind of term insurance offers growth at different life stages such as marriage, childbirth etc. So it is suitable only if you buy a term plan early. Ideally, it is best to buy before marriage because the highest growth is offered at marriage. There are mostly three life stages where growth or increment is offered. These are marriage-50%, 1st child-birth-25% and 2nd child-birth 25%
Looking at all the above choices available to increase the term insurance cover, it is advisable that you choose a term plan with an increasing cover option as it is most convenient, no unnecessary documentation is required, and the claim process is also simple like a traditional term plan and the premium remain same throughout the term of the plan. However, if you are you and still not married you can consider life-stage growth term insurance also. Depending on your age, your salary and the final cover your family gets, compare all the options with their costs and return and make an informed decision. Term insurance is meant to financially protect your family in your absence, so the cover should be enough to fulfil their needs. Hence it is important to understand the various products available and what they offer at what cost.