Insurance: Why you should increase your term life cover going forward

The primary objective of life insurance is to eliminate financial burdens a family might face in case of an untimely death of an earning member, by providing adequate financial support. Term insurance policies are pure protection covers that offer death benefit and cover the financial loss in the form of either a lump-sum payment or regular income payments, basis the option chosen by a customer. Therefore, it becomes very important to opt for a plan and cover that will provide adequate protection to your family, especially when you are not around.

The sum assured amount should be determined based on your income-expenses trend, assets, liabilities and your family’s financial goals. Keep in mind that your financial situation is dynamic and changes at different life-stages and age. Also, the rate of inflation demands the need for higher cover in future. In such a scenario, it is critical to assess the appropriate life insurance cover.

Importance of term plans
The thumb rule is to have your term policy active at least until your retirement age or until you accomplish major financial goals. Such a plan can ensure peace of mind until you retire. With high coverage at a low premium, term plans can substitute the income in case the policyholder is no more. It is one of the most necessary insurance plans one should buy at every life stage, but with a clear understanding of future requirements and adequate coverage.

Increase sum assured
Since, purchase of insurance is a contract, it is sacrosanct. Sum assured in life term plans is fixed at the time of purchase and cannot be changed during the policy tenure. It, therefore, becomes crucial to carefully assess the cover required before buying the plan. However, you can increase your cover with the same insurer by opting for the increasing sum assured option, that increases your life insurance cover at regular intervals, to take care of increasing needs of your family, while also covering for inflation. The premium rates for such policies can remain constant for the term period. Many term plans also offer life stage protection features, where the cover increases at key milestones of life such as marriage, birth of child, etc. This ensures that you are adequately protected at every life stage.

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Buying another policy
To decide whether you should buy another term plan for the additional amount or discontinue the existing one and buy a new one, you can get a quote for these two circumstances and compare it accordingly. If the additional term plan premium added to the premium of older plan costs less than the new plan bought for the total amount, it is better to buy cover for the additional amount.

The cost depends on factors like age, occupation, lifestyle and medical history of the policyholder. With increasing age, purchasing a new policy will always cost more. Medical history also has a role to play, because any severe illness in the past will increase the cost of the policy.

By Parag Raja 
(The writer is chief distribution officer at Aditya Birla Sun Life Insurance)