What is the difference between an increasing and decreasing term insurance plan?
We live in a time of uncertainties, with the pandemic and chronic diseases plaguing the population. Hence, it has become vital now more than ever to secure your life with a life cover. If you are the breadwinner of your family, you have the task of looking after your family’s financial wellbeing. However, you need to plan beforehand in case of any unforeseen situation where you lose your life. Life insurance ensures that your family is financially secure in your absence. While there are several types of life insurance out there, the one that is gaining popularity amongst people lately is term insurance.
Term insurance is a type of life insurance that provides financial cover to an individual for a specific time. In case of the death of the individual who holds the term plan, the nominee is entitled to the sum assured of the term plan. Term plans are famous for their low premiums and high coverages. Also, term insurance is purely only life-cover-based insurance with no element of savings or investment attached. Usually, the term insurance premium is lower than traditional life insurances for the same amount of cover. Apart from the regular type of term insurance plan, one can also choose to buy an increasing or decreasing term life policy.
What is increasing term insurance?
When you opt for an increasing term insurance plan, the coverage of your policy increases during specific periods, as mentioned in the policy. So, throughout your policy tenure, your term cover keeps increasing. For example, as a person in your 20s, you may not need much coverage. However, if your policy is for 30 years, you would want a much higher cover in the later years. An increasing term policy exactly ensures that. Also, many people opt for an increasing term plan where their sum assured increases by a fixed percentage every year through the tenure of the policy. This is to compensate for the rising inflation. It ensures that your term plan can match the increased cost of living and your family does not face any monetary challenges. Another advantage of opting for a term plan is that it considers that times keep changing. You can use a term insurance plan calculator to know about the premiums you have to pay for the increased sum assured.
What is decreasing term insurance?
Contrary to the one mentioned above, in a decreasing life term plan, the sum assured decreases over the policy’s tenure. You can choose a policy where your sum is reduced every year or during specific periods of your insurance. You might think, why would I decrease my term insurance plan? Most people opt for this option after they barely have any liabilities and have enough of accumulated wealth. Having financial stability and dependents less to none, it may also lead to one choosing to buy a decreasing term insurance plan. The biggest advantage of choosing a decreasing term plan is that the term insurance premiums are usually lower than regular and increasing term insurances. Also, the premiums are fixed throughout the term, making it a more affordable and easy option. Check the term insurance plan calculator to get the numbers of your premiums and your decreasing sum assured of your term plan.
There is no one right term insurance for all. Depending upon the stage you are in your life, an increasing, decreasing, or regular plan would be optimum for you. If you know that your liabilities or dependencies are going to increase over the next few years, opt for the increasing life insurance. Also, if the lifestyle of your dependents is increasing or you are afraid that the initial sum cover may not be enough based on the rising prices, you can choose an increasing term plan. While, when you will retire in a few years and your children are all financially stable, a decreasing term insurance plan would be better for you. Also, if you do not have any major responsibilities, in the long run, a decreasing plan would be a good choice.