Can you depend on Life Stage Benefit for upgrading your term life insurance?
As you plan to buy a term insurance policy, you go through the tedious task of making a detailed calculation of the required sum assured, based on all your current financial responsibilities. You meticulously calculate how much your family needs both in the short term as well as in the long run to arrive at the perfect amount, and buy a plan for that sum assured.
But as time goes on, through the course of your life - things change. In all probability, you will pick up new responsibilities - have a child, take out new loans, etc. Considering these new responsibilities, your original sum assured might fall short. Especially - if you've bought your first term insurance plan early in life - you'll need to get at least two upgrades by the end of the term.
Ordinarily, there is no option for you to directly upgrade your term insurance, like your health insurance plan for example. In term insurance, if you want to increase your sum assured, you'll need to buy additional policies - the process for which, might not be simple or seamless.
Here are some hiccups you're likely to face -
- Fresh Documentation: Remember, this will be a separate policy you'll be purchasing, so you'll have to go through all the documentation once again.
- Medical tests: You will also need to go through all medical tests again - and in case you've developed an illness during this time - there's a risk of the policy getting rejected, or premiums getting way too expensive.
- Multiple policies, multiple claims: It is one thing that you've to go through the hassle of managing multiple policies - It's another that your family will need to go through multiple claims processes while grieving for your loss.
So, how can you avoid this hassle?
One option insurers promote is called a Life stage Benefit - a feature that you can choose while buying the first term insurance policy. If you pick this feature at the time of the policy purchase, it promises to help you make upgrades to your term cover without any additional paperwork or medical tests.
Further, you'll be upgrading the existing term cover - so your family will not need to go through multiple claims processes - just one.
But how does it work, and how useful it is when you really need it - Let's find out quickly.
What is a Life stage Benefit?
Life stage benefit is a feature that allows you to get an upgrade to your term insurance cover, at certain life stages or milestones, without the hassle of any additional paperwork or medical tests.
Wondering - what counts as a life stage? A Life stage is pre-defined by the insurance company - usually getting married, having kids, or taking home loan will be considered as a life stage. Once you reach such a milestone, you'll have the option to inform your insurer and upgrade your sum assured by paying an additional premium.
Once done - this new, higher amount will be effective from the next anniversary of your policy.
What are the benefits of Life stage Benefit?
There are some advantages of choosing a Life stage benefit option:
- No additional medical tests: One of the main advantages is that at the time of the upgrade, you will not need to go through any medical tests. This means, any change in your health conditions will not hike your premium.
- No change in underwriting: There will be no change in the underwriting of the policy either. Whatever was the underwriting for your base term plan - will continue for the upgraded cover as well.
- Very little documentation: You will not need to submit any additional documentation - except for a proof of the Life stage (for example, the marriage certificate, birth certificate of the child etc.)
- Single policy, single claim: The feature allows you to upgrade your existing policy, meaning you’ll have just the one policy to manage. At the time of claim settlement as well, your family will only need to go through a single claims process.
- Simple process: Getting a Life stage Benefit is very simple. All you need to do is tick a box, and wait until the Life stage to upgrade the sum assured.
How much can I increase my sum assured through a Life stage benefit?
There might be a limit on the maximum increase of sum assured you can get for every event, depending on the insurer. You should be aware of such limits - so that you're not taken by surprise at the time of the upgrade.
For example, in Max Life’s term insurance policies, this maximum increase is limited to 50% of your base sum assured. Others, like Bharti Axa allow a maximum of a 100% increase.
Do I have to pay anything to get this benefit?
You don’t have to pay an extra cost while signing up for the Life stage Benefit feature, at the time of buying the policy. However, there will be a hike in your premium when you apply for the upgrade. This premium will be based on the new, revised sum assured, age and other factors, explained below in detail.
How is the Premium calculated?
Every time you decide to upgrade your policy, your premium amount for the increased sum assured will rise. The premium for the increased sum insured is calculated differently and varies from insurer to insurer.
The additional premium for the increase in sum assured is based on three factors.
- Your current age: Your age at the time of the upgrade?
- Remaining policy term: How many years of the policy are left.
- Sum assured band of the New Sum Assured: The rate of the premium applicable for the New Sum Assured (Base sum assured + Life stage Benefit) is taken into consideration
NOTE: As an exception to point No. 3 above, in the case of Tata AIA, we found that the premium for the increase in sum assured, was based on the rate for the base sum assured band.
Who is eligible for a Life stage Benefit?
- Standard Lives only: The benefit is available only for people with Standard Lives - which means people who did not have to pay an additional premium over the standard rates when buying the policy - this is usually people who declared any chronic disease at the time of buying the policy.
- Upto an Age limits: This feature can only be taken by individuals until a certain age limit - usually this limit is set at 45 or 50 years and varies across insurers.
NOTE: Some insurers only allow you to opt of a Life stage benefit, if you're not choosing an increasing cover option. For example - Across all Max Life term insurance plans - if you choose an increasing or decreasing cover option - you cannot also choose Life stage benefit.
Scenarios in which Life stage benefit won't work
Life stage benefit comes with a lot of conditions and restrictions, drastically limiting your options to customise your term insurance plan, as per your family's needs. It is important to understand this fine print in detail, before you choose to go ahead - as it could restrict the quality of your cover, add-ons and features you can choose.
Here are some scenarios you should be aware of.
- Rider based restrictions: In the case of some insurers/ plans - you cant take a Life stage benefit, if you've chosen certain Riders with your term plan. For instance, in HDFC C2PP if you choose an Accidental Death Benefit Rider, you cannot also choose Life stage benefit option.
- Feature based restrictions: Choosing certain features such as Monthly Income Payout, or Limited Pay might disallow your plan for a Life stage benefit option.
- Age restrictions: You cannot upgrade the policy using a Life stage benefit after you're a certain age (usually 45 or 50 years, based on the insurer)
- Waiting Periods after base policy purchase: Some insurers might have a waiting period, only after which you can upgrade your cover.
- Restrictions based on policy years left: Some insurers have a condition that you can get an upgrade only if a certain number of policy years are remaining. (usually 5 or 10 years)
- Restrictions based on premium payments left: Some insurers need that a certain minimum number of premium payments are left, when you opt for a Life stage based upgrade of your sum assured - usually, around 10 years.
Comparison with other upgrade alternatives
As an alternative to a Life stage benefit - you could choose to either manually upgrade your cover periodically, or choose an increasing cover option on your base term insurance plan.
Here's every comparison you might need to make, to save you the trouble! 🙂
Comparison: Life stage benefit Vs. Manual upgrades
A Life stage Benefit might be more beneficial than Manual upgrades which are often tedious. Let’s see where the major differences are.
- Medical tests: If you decide to upgrade manually, you might be asked to take new medical tests again. Based on any changes in your health during those years - you might be asked to pay a higher premium - or in the worst case, the policy could be rejected. In the case of a Life stage benefit however, you only have to take the medical test at the time of buying the base policy, and never after.
- Documentation: You will have to fill the entire proposal form and go through the entire documentation again while buying another policy and the whole process can be time-consuming and tedious. In a Life stage Benefit, you don’t need to fill any new forms. You’ll just have to submit a few proof documents, and you’re done.
- Claims process: In the case of a manual upgrade, you’ll essentially have two proposals. That means, your family will go through two claims processes. On the other hand, a Life stage benefit is only a direct upgrade on your existing cover. So, one policy for you - and one claims process for your family.
Comparison: Life stage benefit Vs. Increasing Covers
Increasing covers are automatic upgrades and do not require any manual intervention, documentation or proofs. Here's what you should keep in mind while comparing life stage benefit to increasing covers.
- Premium: In Life stage Benefit, the premium amount remains constant (the premium of your base cover) till you apply for an upgrade. You will have to pay a revised premium once you upgrade your policy. But in case of an Increasing Cover policy, the premium remains constant throughout the term of the policy.
- Type of upgrade: With an increasing cover, the sum assured automatically increases with time. With a Life stage benefit, you’ll need to intervene - and contact the insurer to get the upgrade, if you want to upgrade.
- Medical tests: Neither of these types of upgrades require additional medical tests.
- Submission of documents: With an increasing cover option, you do not need to submit any documents or proofs to get the sum assured increased. This makes it far more effortless than a Life stage benefit.
Summing up: Deciding which of the three upgrades is the most useful for you?
The process of upgrading the cover using a Life stage benefit
- If you plan to take term insurance along with the Life stage benefit, you should inform the insurer about it, while purchasing your base term insurance plan.
- Then, every time you reach a life stage you’ll need to inform your insurer within 6 months/ 1 year of the life stage event to exercise the upgrade and submit proof documents, to apply for an upgrade.
- This newly upgraded sum assured is effective from the next anniversary of the policy.
- Along with the upgrade of your sum assured, your premium is also going to increase accordingly.
- In addition to your Life’s milestones, you have an option to apply for an upgrade on your 45th or 50th birthday with some insurers.
A Life stage benefit aims to help you upgrade your cover seamlessly through different stages of your life. However, it comes with several restrictions and conditions, and we would advice against depending on this benefit for your future upgrades.
Instead, we recommend that you consider an Increasing Cover option to get an adequate cover lifelong - while being able to customise your policy more effectively in terms of the premium payment options, claim payout options, Riders etc. according to your needs.
- A Life stage benefit allows you to increase your term insurance cover, at the time of a life milestone.
- However, it comes with several restrictions and limitations that makes it a very tricky option.
- A better alternative is to choose an increasing cover option, to systematically increase your sum assured gradually.
Beshak's go-to research geek. Always scanning insurance products and websites. Rich exposure to the entire spectrum of insurance products. He was last a Product Analyst at Coverfox.