Increasing Term Insurance According To Changing Stages Of Life

As you grow older, your responsibilities start increasing. You begin taking up newer roles, try to provide the best lifestyle for your family, take loans to start your own business or purchase a house, and so on. In line with your responsibilities, you need to purchase a term insurance plan that provides your family a sufficient cover across all your important life stages. By doing so, you would be securing your family’s future financial needs without them having to compromise on their lifestyle and dreams in your absence.

There can be broadly 3 ways of ensuring sufficient term insurance cover for your family across life stages -

1️⃣ Buy a new Term Plan every time your need increases

One way to achieve this is to keep buying a new term insurance plan every time you need a higher cover.

For example, you can start with a low term cover when you are single & have financially dependent parents. Then in the future, you buy a new term plan when you get married to provide adequate financial protection to your wife, and another when you buy a house. You once again buy another plan when you have children to cover up their future financial needs - it goes on. There are many flaws with this approach.

You would be buying plans at a later age, therefore ending up paying extra premiums based on your age.
There's a risk of you developing a disease/habit - because of which your premiums could be way higher - or policy could altogether be rejected.
You would have to go through all the documentation again - every single time - and manage multiple policies. Plus, you would have to pay multiple premiums and keep track of each policy throughout the term.
Similarly, your family would have to go through multiple claim processes in times of distress.

Due to the above reasons, we wouldn’t recommend that you follow this approach. But then, the question remains - what is the alternative approach that you can follow to buy an adequate term insurance protection that meets all your long-term needs? 🤔

The answer to this question lies in 2 alternative approaches that we’ll discuss here.

2️⃣ Buy an Adequate Cover

Every family is unique and has its own set of needs and requirements. Having said that, you need to understand your family’s current and future financial needs and accordingly choose an appropriate term cover. You should choose a cover that can fulfil your family’s short-term and long-term needs. But, the question is how?

Well, the easiest way for you to choose an adequate cover is with the help of a simple calculation. All you need to do is -

Add Living Expenses Fund (basic needs, groceries, monthly expenses, etc.)
Add Major Expenses Fund (like children's wedding/sending children abroad for higher studies, etc.)
Add Major Liabilities Fund (home loans or any other major loan)
Subtract Existing Funds (Savings, FD’s, etc.)

While this method ensures adequate protection, the cost of term cover may be high as you buy a higher cover right from day 1 when your needs may not be as high.

Let’s look at the other alternative.

3️⃣ Choose the Increasing Cover Option or Increasing Term Insurance

Today most term insurance plans offer you flexible customisation options. The Increasing Cover option is one such customisation offered by some popular term plans in the market. But, what is Increasing Cover or Increasing Term Insurance?

Under the Increasing Cover option, your cover amount automatically increases at regular intervals until it reaches a maximum limit. This is an excellent way to ensure you stay covered throughout your lifetime. With this option, you would also be saving a lot of money compared to buying a whole new term policy altogether.

Benefits of Increasing Cover

Here are some of the benefits of choosing the Increasing Term Insurance or an Increasing Cover -

No Additional Medical Tests: Every time you decide to upgrade your term plan by purchasing a new term policy, you must undergo medical tests. However, you don’t have to experience this process with the Increasing Cover option every time your sum assured grows.
No Risk of Policy Getting Rejected: Most of the time, when you plan to buy a new term insurance policy, there are chances that the insurer could reject your policy if you have developed a health issue or a habit (like drinking or smoking). But, when you choose the Increasing Cover option, you no longer have to worry about your policy getting rejected, and your sum assured increases automatically without any complications.
No Additional Documentation: As against buying a new term plan, the Increasing Cover option spares you the effort of providing additional documents or proofs every time your sum assured increases.
Easier to Manage the Policy: If you choose to manually upgrade your term cover by purchasing a new policy every time, then there are chances that you might find it difficult to manage all the policies. However, by choosing the increasing term insurance, you’d only have to manage a single term insurance policy throughout your policy duration. Furthermore, in the future, even your family would only have to go through the claim settlement process once rather than experiencing the process multiple times.
No change in Premium (for a few years): Most term insurance policies that offer you the Increasing Cover option provide you with a higher sum assured without any changes in the premium.

Having discussed the 3 broad ways of ensuring sufficient term protection for all long-term needs, let’s also look at a popular feature called ‘Life Stage Benefit’ available in some popular term plans.

What is the Life Stage benefit?

When we talk about upgrading the term cover, apart from the Increasing Cover option, you might also hear about the Life Stage Benefit option.

This feature allows you to upgrade your term insurance at certain life stages or after achieving a milestone without having to undergo any additional documentation and medical tests. Once you reach a milestone (like marriage or having kids), you have the option to inform your insurer and upgrade your sum assured by paying an additional premium.

While you might find this a better alternative option than the Increasing Cover feature, there are many drawbacks to choosing the Life Stage Benefit feature.

Drawbacks of the Life Stage Benefit

Here are some of the disadvantages of choosing the Life Stage Benefit feature.

Age Restrictions: After crossing a certain age, you cannot upgrade the policy by using the Life Stage Benefit. It is usually 45 or 50 years and depends on the insurer.
Restriction on Riders: Most insurers or term plans do not allow you to opt for the Life Stage Benefit feature if you have chosen a certain type of Rider with your term insurance plan.
Restrictions on Certain Features: If you opt for certain customised features such as the Monthly Income Payout option or Limited Pay option under your term insurance policy, then you cannot opt for the Life Stage benefit feature for your policy.
Waiting Period After Base Policy Purchase: Some Insurers could have a waiting period for availing the increased cover option under Life Stage benefit.
Restrictions on Remaining Policy Years: Some Insurers allow you to avail life stage benefits only if you have a certain number of years (5 or 10 years) left for your policy maturity.
Restriction Based on Premium Payment Left: Some insurers require you to have a minimum year of premium payments left before you can upgrade your sum assured with the help of the Life Stage Benefit feature.

Rather than opting for a feature with numerous restrictions and disadvantages, we recommend you stick to the Increasing Cover Option. It is one of the simplest options to upgrade your cover without stress.

If you have any further questions or doubts, feel free to post them on the Beshak Insurance Forum and get your answers within 6-8 hours from insurance experts.