How To Increase Term Plan Coverage When Purchasing A Policy?

When Manish bought his first term insurance plan at 25, he knew it was a responsible decision. At that time, the only dependents he had were his parents. A Rs 50 lakh cover seemed adequate to him with no loans, no kids, and a steady IT sector job. But at the age of 35, Manish now has two children, a home loan, and is planning his finances for his children’s education and weddings. The thought of providing sufficient financial cushion to his family in case of any unfortunate event haunts him.

Given his changing life and responsibilities, a Rs 50 lakh cover did not seem enough to him.

Just like Manish, many people start with a term insurance policy that aligns with their current needs. But as you grow in life, you are met with increased responsibilities, expenses, and the devil in the corner - inflation. This brings up an important question, when the situation arises, how can you increase your term plan coverage?

Let us look at the various options you have to fill in the coverage gap:

Option 1: You Can Buy a New Policy

The most simple idea to up the coverage is to buy another policy that will cover the gap in your target amount. For example, Manish can purchase an additional Rs 50 lakh policy at 35 to meet his growing responsibilities. But there is a catch here, make sure you concierge following factors as well:

- When you buy a new policy you will have to undergo a fresh round of medical check-ups, and any new ailments that affect you at this stage will affect your premium pricing. It may even impact your eligibility criteria for the said policy.

- One of the most important aspects to note is that as you age, term plans get more expensive.

- Moreover, managing multiple policies can be a cumbersome task. In case of any unfortunate event, your family would have to juggle multiple claims which will lead to extensive paperwork in your absence.

Buying a new policy can solve the problem of less coverage, but it can be a hassle as well.

There are two other options that help you with an increased coverage amount, but they are primarily applicable at the time you are purchasing your policy:

Option 2: Opt For a Life-stage Increment

Some insurers offer a life-stage increment feature for term insurance policies. This feature allows policyholders to increase their coverage automatically at key milestone ages of life such as marriage, becoming a parent, or buying a home.

For instance, if Manish had chosen a policy with life stage increments, he could have increased his sum assured by 50 per cent after his marriage and another 25 per cent after the birth of his first child without going through any additional medical test or extended paperwork.

However, if you consider this option remember there is a caveat: You have to select this option at the time of purchasing the policy as it won’t be available later. It will be best to get full details from the insurer and understand every detail of this option.

Option 3: Choose an Increasing Term Insurance Plan

The option can be the most seamless solution to up your coverage. Under this feature, your sum assured increases by a fixed percentage every year, say by 5 per cent, or 10 per cent, until it reaches a maximum limit like 2 times the original cover.

Take Srishti for example. She bought a Rs 1 crore policy at 25 with a 10 per cent annual increment. By the time she turns 40, her cover will have doubled to Rs 2 crore. Typically the premiums remain constant throughout the term even if you choose this premium. However, it would be best to check with your insurer and cross-check such details before you opt for this feature.

There are a few additional factors to consider such as:

- Verifying when the increments will start per your policy. Usually, this may be after a few years (such as 5 years into the policy).

- There could also be a cap on how much your cover can increase such as twice the original amount and no more than that.

- Premiums for term policies with this feature could be higher than regular plans, so you should consider and budget this aspect as well.

Which Option Is Right For You?

Says Manju Dhake, Senior Vice President, Insurance at 1 Finance, “When considering an increase in term plan coverage, it is generally advisable to purchase a separate policy rather than upgrading an existing one.”

A new policy will allow you to customise your plan based on your current profile, medical history, and financial goals.

However, for those anticipating significant life-stage changes such as marriage, childbirth, etc., Dhake suggests a policy with pre-structured coverage adjustments can be more suitable when chosen at inception.

Similarly, policies offering an annual increase in coverage (typically between 5 to 10 per cent) might be beneficial but can lead to higher premiums. “However, these options should align with a thorough need-based evaluation,” she states.

Dhake further advises that regular review of one’s financial goals, ideally every 6-12 months is critical to ensure the adequacy of term insurance coverage.