Change is the only constant in life. If we put this old adage into perspective, our circumstances will also change and due to this, The assessment is not required on a monthly or yearly basis; instead, we can examine our life insurance coverage when we hit important life milestones. Some of the significant life events that can require you to increase your insurance coverage are:
- When you will marry.
- If your spouse does not work and is financially dependent on you.
- When you have children.
- If your salary has drastically risen and your style of living has improved. You’d need to make sure your loved ones can maintain this lifestyle in your absence.
- If you’ve taken out a large, long-term debt (house loan, college loan, etc.).
How much insurance do you need?
Everything depends on you. You’ll find your answer by asking yourself, “How much money will my loved ones require if I am not present?” This question might help you create a list of your monthly expenses. From groceries to schools, home loan repayment, and lifestyle expenses, sum them all up and double by 20 or 25 (the number of years you believe your family will want financial support).
1. Update to a newer policy: Purchasing another life insurance policy may be an option. To do so, you have to go through the entire documentation process and undergo new medical tests. Given that you’ll be older (and possibly have a new ailment) when you choose a new policy, your upgrade could be costly. One also needs to know managing two different policies can be difficult for both you and your family. Your family will have to deal with two levels of documentation after your demise. Keep this in mind if you’re considering a new policy.
2. Select a plan with life-stage increments: The life-stage increment option adds flexibility to your insurance plan that will take care of your old-age issues. This ensures protection in the critical phases of your life. Furthermore, this advantage does not require you to incur additional costs or pay a higher term plan premium.
In any case, this option is only available to those who purchase a term plan online before or immediately after marriage. Because the biggest increment happens at the time of marriage (50%), it is preferable to include this option in the agreement if you purchase it before marriage.
3. Convert the term plan to a whole life insurance policy: A whole life insurance policy is permanent, so your loved ones can receive death benefits even if you live for a hundred years. Whereas a term plan only covers you for a set number of years. If you outlive the term plan, your loved ones will receive no benefits. The second benefit of choosing a whole life insurance policy is that you can improve your coverage with a whole life insurance policy. Furthermore, switching from a term plan to a whole life insurance policy incurs low expenses. These plans also provide financial value that can be withdrawn later.
However, there are several downsides. For starters, relatively few Indian insurers provide such policies. Thus, there is no possibility to transfer your term plan. Second, if you delve deeper, you’ll realize that their premiums are high. Third, most of us do not need to provide financial security for our loved ones throughout their lives either because they are financially dependent on their own or your savings are enough to cover their daily expenses. Finally, the cash value supplied by whole life insurance is taxed, which can result in higher premiums.
3: Include riders in your existing plan: Adding riders to your existing life insurance policy plan is a low-cost option to increase life coverage. Some of the popular riders include:
Accidental death benefit: You can purchase this rider for a reasonable amount. For example, a Rs 20 lakh accidental death rider costs approximately Rs 1,000 each year for a 30-year-old.
Permanent or total disability rider: This provision can ensure your family’s financial security if you are physically unable to continue working. Assuming you are 30, you may have to pay Rs 300 per year for a Rs 10 lakh coverage.
Critical sickness rider: This option can be useful if you require a significant amount to treat a serious illness. However, the severe sickness must be disclosed in the policy beforehand. For a 30-year-old, a Rs 10 lakh critical illness rider will cost approximately Rs 3,000 more per year.
4. Purchase increased term insurance coverage: Rather than dealing with the complexities of the arrangements mentioned above, you can purchase term protection with increasing life insurance term coverage. The total guaranteed payout can gradually increase over your lifetime. In an increasing term insurance plan, the sum assured grows by a predetermined amount each year until the end of the term. In general, all insurance policies include the option to broaden or renew the plan after its term expires. In any case, the new expenses will be based on an individual’s age and health at the time of renewal. These restrictions do not apply to the increasing term policy plan. There are benefits to choosing an increasing protection plan, such as:
- Term plan premiums typically remain consistent. If a more comprehensive term protection plan is required, the premium could go up in accordance with the increased death benefit. This allows the policyholder to pay a lower premium in the beginning to accommodate their financial situation.
- The increasing term protection plan offers the advantage of keeping up with market inflation. As a result, a policyholder can be confident that his or her family will cover increasing expenses in his or her absence.
Things to remember:
You can purchase multiple riders. The premium for critical illness or other health-related riders should not exceed 100% of the base insurance premium.
The premiums for the extra riders should not exceed 30% of the original policy premium.
