Know when to increase your life insurance cover and how

5 MinsApr 19, 2021

Sanjay Kumar bought life insurance when he landed his first job at the age of 24 – a term policy for Rs. 25 lakh. He was single then, without too many responsibilities. It was a decision that was more governed by the imperative to save some taxes than long-term financial planning.

life insurance cover

Over the next six years, Sanjay got married and had a daughter. As the responsibilities of being parents sunk in, Sanjay and his wife Sarita realised that his insurance cover of Rs. 25 lakh is inadequate to provide for the family in case of a worst-case scenario.

Sanjay is looking to enhance his life insurance cover and figure out the most affordable ways to do it. Here are some options for him.

When would you need to change your life cover

  • An obvious example of changed life circumstances when you would need to increase the cover is when you get married or when you have children, as this will add to your financial responsibilities.
  • Another example is taking on a large debt like a home loan. Some lenders require you to buy insurance that will cover your home loan payment. Even if your home loan does not have such a requirement, it is advisable that to increase your life cover. In case something were to happen to you, your family would be able to repay the home loan from the proceeds of the life insurance policy. You can use Axis Bank’s Life Insurance Calculator to find out how much cover you would need based on your expenses, outstanding loans, existing investments, and future financial goals.

Top-Up Cover

Several term insurance policies have a top-up option that allows the insured person to enhance the coverage amount depending on their life stage and needs. These policies recognise that a young buyer may not be able to afford high insurance coverage at an early stage of his or her career and may prefer additional insurance as their life circumstances change.

[Also Read: Five aspects to consider before buying a life insurance policy]

What buyers need to note is that not all term insurance policies come with a top-up option. If you have bought one of these, you may have to look at other ways to enhance your cover.

What are the other options to increase coverage?

You can opt for policy riders. Riders are benefits that add value to life cover and help you to customise your policy. There are different kinds of riders like:
1. Accidental Death Benefit Rider: If the policyholder dies in an accident under the insurance period, an additional amount equal (or less than) to the assured sum is paid to the nominee.
2. Waiver of Premium Rider: If the policyholder is incapacitated and doesn't have income, he/she doesn't have to pay the premium, but the insurance cover will continue.
3. Income Benefit Rider: After the policyholder's death, the insurance company will continue to provide family members with an income.

These are just a few riders that policyholders can opt for while buying insurance. For an exhaustive list, it is better to check with your insurance company.

What buyers need to note is that not all term insurance policies come with a top-up option. If you have bought one of these, you may have to look at other ways to enhance your cover.

What if I haven’t purchased a rider at the time of buying my policy?

Insurance companies generally allow you to add riders even after you have bought your policy. There is no limit on the number of riders you can purchase. Still, the insurance regulator in India (IRDA: Insurance Regulatory and Development Authority) has mandated that the premium for the rider can’t exceed 30% of the premium for the base insurance policy.

How much does a rider cost?

A premium on a rider generally costs you 5%-10% of the base insurance policy.

What if my insurance policy doesn’t have a top-up option?

If your insurance doesn't have a top-up option, you have two options. One is converting your term insurance policy into a whole life insurance policy, and the second one is to buy a new insurance policy for the additional sum insured that you need. Buying a new insurance policy may turn out to be expensive, and you will have to pay premiums for two separate insurance policies. Keeping track of the premium payment dates for both may prove cumbersome.

Converting your term insurance plan into a whole life insurance policy will ensure that your insurance coverage lasts you for your entire life. The monthly premium on your policy will be higher than what you were paying for your term insurance. This conversion of a term insurance plan into a whole life insurance plan is also a rider available with many insurance companies.

Axis Bank has tie-ups with multiple life insurance companies – Max Life, Life Insurance Corporation of India and Bajaj Allianz Life. Additionally, you can also get an estimate of your insurance premium using Axis Bank's life insurance calculator.

Disclaimer: The Source, a Mumbai-based content creation and curation firm, has authored this article. Axis Bank does not influence the views of the author in any way. Axis Bank and The Source shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.