Life Insurance Top-up – How to do it?

Life insurance has come a long way after it was introduced in India and today it contributes majorly to the insurance penetration in India. While it is easy to understand the need for life insurance for everyone, there are certain blockades that exist in the process.

For example, a life insurance plan once taken would continue for a very long period of time and it is not easy to alter the policy terms and conditions. The sum insured once taken would continue for the entire term of the policy and it would be difficult to enhance or decrease the sum insured during the policy period.

There could be instances where a policyholder wants to enhance the sum insured under the policy proportionate to the increase in income but the process may not be as flexible as purchasing a top up health insurance plan. At present there are no top up life insurance plans available in the market, but customers may opt to either purchase a new life insurance plan or increase the sum assured under the existing plan. 

Here are the 2 cases that are discussed for enhancing the sum assured under a life insurance policy:- 

New policy:

The most common route to increase the coverage of your life insurance is to take a new policy. Whenever your income increases, you may decide to take a new life insurance policy to match your income and liabilities.

Taking a new policy might not be feasible at all times as it comes with limitations. First, for taking a new policy, you should undergo all the required medical checkups and the entire process of underwriting should be done before the policy issuance.

Moreover, when your age increases, the risk that is to be taken by the insurance company increases and this would reflect in the policy issuance process. As your age increases, you would be required to undergo multiple medical tests prescribed by the insurer.

Despite undergoing all the required medical tests there would be no guarantee that the insurance company would offer you the sum assured you desire. A new life insurance policy might increase your overall life insurance coverage but it would not be possible to purchase a life insurance policy every time your income increases.

To tackle this issue, you might go for an increasing cover life insurance policy in which the sum assured would be increased by a certain percentage every year. This increase in sum assured is aimed to counter the inflation that would eat up the effective cover of the policy.

But it is important to note that the benefits under your original policy might no longer be available and you might therefore have to forego some of the benefits under the original policy when you buy a new one.

One of the most important points to note however is that when you are buying a new policy, you should disclose your earlier policy to the new Insurer. The new Insurer would evaluate your risk appropriately and also price it appropriately. In the absence of such declaration however

Sum assured enhancement :

The other option is to enhance the sum assured in the existing policy. Most insurance companies would permit you to enhance the sum assured under the policy but would not permit you to reduce the sum assured.

So, if you want to enhance your life insurance coverage, you may opt to enhance the sum assured in the same policy by making a formal request to the insurance company. It is important to note that the process for sum assured enhancement would be similar to that of taking a new policy except for the fact that in this process you would not have to take a new policy.

Sum assured enhancement in the same policy could be done upon the completion of all the formalities. But the catch here is that there would be a waiting period for the new sum assured under the policy. This concept is relatively new in India and is offered by a limited number of insurers.

FAQs