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How much cover should I take in a term plan?

Confused over how much term insurance cover should you buy? Here are some important things to consider while computing the term insurance cover you would need.

Human life is unpredictable, and uncertainties can rip you off emotionally, physically, and financially too. This is because we don't have control over death; neither can anyone predict it. Death of the breadwinner of the family can cause a huge disturbance in the family member's life.

Term insurance plays an important role in your life to find solutions to these problems. Moreover, a term plan is an excellent way to build a financial safety net. Term Plans are the simplest and most affordable form of insurance which will help your family to settle your loans and take care of their financial requirements in your absence. The death benefit is paid to the beneficiary only upon the insured's death.

The importance of a term insurance cover is indisputable, but how much insurance coverage you should buy is a million-dollar question. Industry experts often recommend this simple formula: A term insurance cover should be 15 to 20 times your annual income. For example, if your annual income is 10 lakhs, then you should get cover for minimum Rs. 1.5 crore.

Here are some crucial things to consider while calculating how much term insurance cover you need.

Age: Your current age is an extremely important factor in deciding how much term insurance you will need. In case you are young in your late twenties or early thirties, you are on the verge of becoming the breadwinner of the family. Your life balance sheet has relatively more liabilities than assets. As you gradually start earning and saving more, your assets will balance your liabilities. That is why in your old age, you need lower insurance cover and higher health cover than what you require at a young age. The good thing is young age works in your favour because you can get higher coverage at an affordable rate. The premium is comparatively less when age is low and vice versa unless you have a dangerous job.

Current household expenses: People have different lifestyles depending on their income level. It is crucial to consider that your family is used to the lifestyle you provide for them. In any circumstances, downgrading your current lifestyle can be a huge problem. Changing one’s lifestyle does take time, but the basic necessities of a particular lifestyle needs to be met under all circumstances. You can calculate the expenses that you would require to fulfil the lifestyle you want to give your family and protect them from financial suffering.

Children’s education: The importance of education is not unnoticed from any of us. We all want to give the best education to our children to help them secure their future. Keeping this in mind, you can calculate the educational cost of your kids, including their higher education, that you would need to fund for securing your children's future.

Loans: In addition to household expenses and children’s education, you must also consider the amount of loan you are liable to pay through your insurance cover. These days when you take a loan, be it a home loan or any other form of a loan, it is strongly recommended by financial institutions to get insurance on it. This way, you are protected against the loan if something unfortunate happens to you.

Assets: You can take into consideration your current asset value if any. This will help you decide on your insurance cover more accurately. For example, you have FDs worth Rs. 5 lakhs and capital market investments in the form of Shares, MFs worth Rs. 10 lakhs then you need to consider a total of Rs. 15 lakhs while calculating your term insurance cover.

Choosing riders: You also have the option of availing additional riders linked to your term insurance cover. Riders are useful depending upon your individual requirements. These optional riders come at an additional cost. It is recommended to check whether these riders are important to you or not. If it is not required, then you may drop the rider option. You should not raise your insurance policy expenses unnecessarily. However, some riders are highly recommended. For instance - waiver of premium rider. This rider will waive all your future premiums in case you get critically ill or permanently disabled. You can also opt for an accidental death rider to get an additional sum assured to give your family additional financial support if you meet with an unforeseen accidental death.

Insurance premiums: Once you buy a term insurance policy, you are liable to pay the premiums as per the payment cycle. Although it is good to get covered entirely against eventualities, sometimes people buy more than they can afford and end up buying extra than needed. You should make sure that the premium amount fits in your budget. Moreover, it is important to note that any default in premium payment may result in policy lapse, exposing you to the risk of not being financially protected.

Children’s wedding: Considering Indian tradition, a family wedding is a significant and costly affair. Keeping this in mind, you would need to ensure that your family does not face any financial constraints in your absence. You may calculate a lump sum figure that would help your dependents to keep the wedding bell tinkling in your absence. You can calculate how much term insurance cover you should buy by considering the points mentioned above. It is important first to understand your needs and then look at various term insurance plans available in the market.

In India, more than 30 insurance providers are offering various term insurance plans. It is a tedious task to go through a brochure of each and every insurance provider for policy selection. The easy and smart way would be to visit an online platform where you can view and compare the best deals with a click of a few buttons. You can compare different term insurance policies with their features and quotes on our website Coverfox.com. All you need to do is enter your basic details, and you will get customised term insurance plans within seconds.

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