Term insurance cover not enough? Here’s how to hike it

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Accept it or not. The first life insurance policy that you bought must have been for claiming tax deduction against the premium paid. Gradually you realise the real need of life insurance. Just when you get serious about it you discover the life cover that you have is simply not enough. You want more. Now what to do? You will have to buy a new policy.

“No top-up facility is available in term insurance the way we have it in health insurance in which one can increase the sum insured in sync with an existing policy. Hence a person, looking for an increased sum assured amount, will have to go for a new policy that suits their requirements,” says Naval Goel, Founder and CEO, PolicyX.com.

Ideally, an individual should have a life cover of at least 10-15 times of one’s annual income. A more accurate way of calculating it is the need-based method in which the present value of dependents’ household expenses for all the years until policyholder’s retirement age along with their other life responsibilities such as children’s higher education and wedding are calculated. An addition of all of it makes for an ideal life cover.

Increasing life cover

If you are in your twenties and do not really sure about future life goals, you may buy an increasing cover plan that allows you to buy additional cover at different life stages.

“Insurance companies have started giving a benefit of increasing sum assured after the marriage or at the extension of the family in order to save the customer from switching to a new policy. The additional premium will have to be borne by the policyholder in this scenario depending upon their age,” says Goel.

Will the premium be higher compared to a basic term plan? Yes, increasing life cover are slightly expensive than pure term plan.

“While the initial premium could be more expensive than a basic term plan, 10 years later, when the need for more cover arises, the cost of buying an additional plan would be much more than the initial higher premium amount,” says Karthik Raman, Chief Marketing Officer and Head – Products, Ageas Federal Life Insurance.

Benefit

“A fresh policy at a later stage in life would mean fresh underwriting and one’s health may or may not be the same then. On the other hand, an increasing cover will increase the sum assured without any additional underwriting,” says Raman.

If you do go for the increasing cover, most insurers allow a standard increase of 50% of the sum assured after marriage and 25% after the birth of the first and second baby each.

“If a person has a sum assured of Rs 1 crore, it will increase to Rs 2 crore. However, the percentage may differ from company to company and plan to plan. Also, in case a person is having home loan then the cover can increase by 50 per cent up to Rs 50 lakh,” says Goel.

Consult with a financial or insurance advisor before buying a term insurance plan. Buying insurance at an early age with correct advice is critical to stay insured adequately throughout your life.