What are incremental term insurance plans?

Ruben Onsu

NEW DELHI: Term insurance is considered important for financial planning. One should buy term insurance if looking to secure the future of dependents. The cover provides a death benefit to the nominee or beneficiary. However, people are generally unaware about the quantum of life cover they need when it comes […]

NEW DELHI: Term insurance is considered important for financial planning. One should buy term insurance if looking to secure the future of dependents. The cover provides a death benefit to the nominee or beneficiary.

However, people are generally unaware about the quantum of life cover they need when it comes to buying a term insurance.

As a thumb rule, you can buy term life insurance for 7 to 10 times your annual income and can increase the cover every year as your income increases. These policies are known as incremental term insurance policies, which allow for an increase in the sum assured each year by a specified amount at a specific percentage. However, the increase in sum assured also entails a higher premium every year as compared to normal term insurance policies.

The insurer increases the sum assured based on the health of the policyholder while buying the policy.

For example: Suppose you bought a term cover of 1 crore (sum assured) for 30 years. Now, when taking inflation into account, the policy might not provide adequate coverage to take care of your family members’ needs and requirements after 10 to 15 years of the policy term. What can help is buying incremental term insurance plan to increase the sum assured by some percentage at the end of each policy year and ensuring sufficient coverage.

Sanjiv Bajaj, joint chairman & MD, Bajaj Capital said, “When you buy increasing term life insurance, your death benefit increases over the policy term. This type of term insurance provides extra protection at every stage of your life. This is because as and when you grow old, besides inflation, your expenses also increase. For instance, your family might get increased, you might want to buy a house or own a new car, etc.”

Tax benefits are similar to that of normal term insurance policies, that is, the premium paid towards the policy is eligible for tax deduction under Section 80C of the Income Tax Act. Death benefits are also exempt under Section 10(10D) of the Income Tax Act.

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