While it is true that loss of life cannot be compensated in any way, having term insurance can ensure that your family does not face any financial stress. The amount they receive from the insurance company can help them meet their regular expenses and maintain a decent lifestyle even in your absence.
A term insurance policy is one of the most popular types of life insurance policies wherein you pay the premium periodically. In return, the insurance company agrees to pay the sum assured to the policy beneficiary in case of your unfortunate demise during the policy period.
While it is essential to buy a term plan for your family, it is equally critical to buy the right plan with the right coverage to suit your family needs. So, one of the vital questions you must ask yourself while buying a term insurance plan is‘how much term insurance do I need?’
Insurance experts suggest buying a term cover that is about 15 to 20 times your annual income. However, when choosing the right term plan cover, there is no one-size-fits-all formula or process. We discuss a few vital factors that you must consider while assessing the insurance cover you and your family may need.
Your age at the time of buying the term plan is an important factor that you must consider for determining the insurance coverage you would need. If you are a youngster in your 20s, you may not have many financial responsibilities towards your family. At this stage, you can avail of term insurance with a sum assured of ₹ 5 to lakh or more as per your premium payment capacity.
However, when you enter your 30s, the chances are high that you may have additional responsibilities towards your spouse and children. Not to mention, at this stage, you may have availed of a few debts like a car loan or home loan.
At this stage, you would want to ensure that the debt repayment burden does not fall on your family members in the event of your unfortunate demise. So, it is advisable to choose a term plan that covers the debt amount and a little more so that your family has sufficient money to take care of their everyday needs. A term plan with a sum assured of ₹ 50 lakhs to 1 crore or more would be ideal.
While choosing the right term insurance coverage amount, you must consider your family’s standard of living, the monthly expenses of your family members and the number of years for which they would need a stable income before they can be financially independent.
Significant future expenses
When you determine the term insurance coverage amount that your family may need, you must not just look at providing a basic life. You must also think about the significant future expenses that your family members may incur, like child education, marriage, and other important milestone events.
Also, you must not forget the inflation; the cost of living has been rising over the years and will increase in the future. So, the coverage amount you choose must be significant enough to help your family take care of such expenses without making any compromises.
The term insurance coverage needs vary from person to person. You must choose the right sum assured amount to suit your family’s needs.