The world has been going through some unprecedented times which made us all remember about the importance of our family and their wellbeing.
This has also led to people understanding the importance of life insurance, including term insurance. According to India Brand Equity Foundation’s August 2021 data, life insurance industry in India is expected to go up by 14-15% annually for the next three to five years, clearly indicating that more and more people are understanding the importance of term insurance policies and are subscribing to it.
But a question that persists among most insurance buyers is one – How much coverage is enough for my family?”
Since there aren’t any hard and fast rules about what and how much insurance cover one must have, it is ideally considered ideal to have a term life coverage that is nearly 10 times of the annual income.
But it might not be that simple. A lot of factors have to be considered before you decide on an amount. Let us, through this article, explore on the same.
But Firstly, what does a term plan mean?
Term insurance is the most basic type of life insurance that provides life cover for a specific period of time. With the help of this policy, you can easily get a life cover for a higher amount with a low premium rate. If, unfortunately, the policyholder expires during the term of the plan, the beneficiary will get the sum insured. This make sure your family is protected financially at a time when you can’t provide for them.
How to ensure that your sum covers expenses smartly?
There are no strict parameters of the amount you must insure during the insurance cover. It depends on your financial and family status. Below is a checklist on things to consider so that you are sure that your coverage is enough.
- Check on the liabilities – You might have high EMI amounts to repay, especially if you have taken home or personal loans. While it might be easier for you to pay them back with your current income, if you ever have to leave your family behind, it could get difficult for them. Therefore, before deciding on the cover amount of the term insurance, it’s advisable to keep the existing debts and liabilities in mind. Ideally, your family should be able to pay back their debts and should still have money to meet their needs.
- Check on the expenses – One of primary things insurance experts advise is to calculate the expenses of the household. This should include day to day expenses, educational needs of your children, old age care needs of your family etc. This planning will make sure the amount you have chosen is adequate for your family to survive. The important thing here is that it is not only the matter of their survival. They should be able to lead a comfortable life as well, especially if you are the only earning member of the family.
- Check on the future –Apart from calculating the future expenses, making sure you take in account the inflation and possibilities of life events in your family, such as a marriage or a childbirth, is essential in deciding on an adequate coverage amount. Inflation could make your sum insure have less purchasing power. For instance, Rs.1 crore will not have same purchasing power a decade after. If this math is confusing for you, you could make use of a term insurance premium calculator to understand the numbers better.
Deciding the right policy amount according to your need is hence extremely important. You could also take the help of an insurance expert if you need a hand in figuring out the plans. Most insurance provider websites have advisory and tools like term insurance premium calculator to help you with the decision. Get help and get insured today!