Term Insurance 101: Should you get an increasing or decreasing term insurance?

Read on as we decode these two types of term insurance plans and help you understand which one may be just right for you.

FP Studio November 06, 2020 21:05:03 IST
Term Insurance 101: Should you get an increasing or decreasing term insurance?

The world is reeling under the effects of the coronavirus pandemic with over 43 million people infected worldwide and almost 1.2 million deaths1. Now more than ever, people understand the value of having a safety net in place. When it comes to insurance plans, the market is saturated with options. Yet, most of us are overwhelmed, not overjoyed by the choices. This is simply because the choices often leave us confused as to which one will best fit our needs.

Term plans are among the most common and simplest forms of low-cost life insurance options that suit the insurance needs of most individuals. While a term life insurance plan ensures a settlement in case of unfortunate death of the policyholder, there are several types available in the market, which can affect the amount of the benefit that is provided under the plan. Two such types are increasing and decreasing term insurance plans.

Read on as we decode these two types of term insurance plans and help you understand which one may be just right for you.

What is an Increasing Term life insurance plan?

Unlike a regular term insurance plan, which has a fixed sum assured, your coverage increases at specified periods during the plan tenure in the case of an increasing term insurance cover. For example, you could increase the cover amount at important events in your life like when you get married, or at the time of your child’s birth, or when the child reaches a certain age, etc. Another option is to increase the sum assured every year by a fixed percentage to compensate for the rising cost of living during the term of the policy.

Buying an increasing term insurance plan is a prudent way of protecting your family's future in case you are not around. As a rule, increasing term insurance plans will have higher premiums than a regular term policy as the payout increases over time and so does the liability of the insurer.

Advantages of an Increasing Term plan

Takes inflation into account

An increasing term plan helps you match the rise in the cost of living due to inflation and ensures your family’s well-being is assured even with the changing times.

Keeps your life goals intact

This kind of plan also gives you peace of mind as it takes into account changing financial goals and milestones in a person's life. As you move from singlehood to getting married, you can easily add your spouse to the increasing term insurance as well as per the terms and conditions of the policy availed. You can alter the premium payment and cover amount based on the changes in your income, which ensures that your loved ones get to enjoy the best in life no matter what it may throw at them.

What is a Decreasing Term life insurance plan?

Just like the increasing term plan, a decreasing term insurance plan also adjusts the sum assured at different stages of your life based on the change in your circumstances. However, as the name suggests, the sum assured in a decreasing plan reduces every year. The idea is that with age, your liabilities may also decrease and your accumulated wealth increases, hence, you may need a lesser cover as you grow old.

Advantages of a decreasing term plan.

Economical

Generally, the premium for such plans is lower than increasing term plans, as well as regular term plans. Moreover, the premium also remains constant throughout the term, making it substantially more affordable than traditional and increasing life insurance plans.

Apart from these, both increasing and decreasing life insurance plans allow customization through several optional riders that cover accidental death, terminal illness, accidental disability and so on.

 Which is the right plan for you?

 A decreasing term insurance plan works on the rationale of lower liabilities in the later stages of life. Therefore, if you are already close to re-paying home or personal loans and have accumulated wealth for other future financial goals, a decreasing term plan may be useful and convenient for you, as most of your financial responsibilities would have been taken care of in the near term. Decreasing term insurance essentially balances your insurance needs with the liabilities in your life. If you do not have significant long-term commitments, choosing decreasing term insurance is a great idea.

On the other hand, an increasing term insurance plan is a good idea if you want your sum assured to keep up with expected increase in your expenses as inflation digs a bigger hole in your pocket every year. You may want more coverage when you start a family, as more people would depend on you. As this plan keeps up with inflation, it helps you plan for rising responsibilities and increasing liabilities in the future with ease.

Bajaj Allianz Life Insurance offers term insurance plans with a whole bouquet of additional benefits.

In Bajaj Allianz Life Smart Protect Goal term insurance plan, the sum assured of the Increasing Life Cover Variant increases every year, subject to a maximum of up to 200% of the base cover#. Moreover, you have the flexibility to pay the premium of your policy monthly, quarterly, half-yearly and annually. You can even change the premium payment frequency on any policy anniversary.

The idea of uncertainty in life is terrifying. This is why having a backup plan that can ring guard your family is important. Find the option that will help your loved ones carry on living unencumbered by financial distress by exploring all your options and picking the one that is best for you and your loved ones.

This is a partnered post.

Source:

1https://www.worldometers.info/coronavirus/

Disclaimer:

#Product feature/benefit mentioned above are dependent on variant chosen. For more details on policy terms and conditions, please read the sales brochure carefully before concluding a sale.

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