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When to upgrade your term cover

When to upgrade your term cover

Term covers need to be upgraded with a regular frequency to cover your current life conditions. Here are a few things to keep in mind.

Growing awareness about the importance of having a life insurance policy has led many youngsters to opt for a term cover as soon as they start working. However, the cover initially purchased is normally pretty small and is often less than Rs10 lakh. As they grow older, this cover seems insufficient as marriage, children and possibly a housing loan are factored in. Furthermore, with all the added responsibilities it can become extremely difficult to get a higher life cover. So what do you do?

Policies have gotten cheaper
Let’s start with the basics. There are many term plans available in the market, both online and offline. Term plans – particularly the ones that are sold online – have become extremely cheap. For example, 10 years ago, a 23-year-old man would have had to pay anywhere between Rs2,500 and Rs4,000 as premiums for a period of 30 years for a life cover of Rs10 lakh. Today the same person (now 33 years old) could get a Rs1 crore policy by paying Rs8,000 to Rs12,500 as annual premium. These are just approximate figures for non-smoking men and do not include any taxes or premiums for additional riders. This sizable difference in premium might make you rethink about your existing policy.

Get a new, cheaper policy
If you come across a new policy that offers you a higher sum assured for a lower premium, then you are better off going for it and discontinuing the old policy. If your old policy has a shorter time frame (say 15 years), you should get rid of it and buy a new one that lasts at least until you retire.

Recheck your insurance needs regularly
Most life insurance products limit their cover to the age of 70 and have a maximum term of 30 years. So essentially, around 40 years of age you must review your insurance needs and opt for a new policy, if necessary, in order to get the full benefits. Beyond 40 years of age, the premiums of life insurance products also increase sharply.

You must remember that even though 40 is a crucial age, you must review your insurance needs every 5 years. Often career advancement leads to higher income and a change in lifestyle, and you could end up needing a larger cover to maintain that lifestyle.

Review your needs at important milestones
You must also review your life insurance cover after key events such as marriage, the birth of your child or when buying a home on finance. These are events that require you to buy more insurance cover. However, it might not be financially feasible to take a new policy each time.

Insurers are in step
Insurance companies have taken note of these issues and have come out with policies that might address them. For example, many companies now give you the offer to increase the sum assured by 5% every year. Keep in mind though, that you’ll need to pay an additional premium to get a higher sum assured. Also, the extra sum assured is always expressed as a percentage of the original sum assured.

If you are changing your term plan, getting additional cover or buying a new one, you’ll need to take all costs into account. A word of caution is not to blindly settle on something; always read the fine print.

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