Life is unpredictable, and making your dear ones secure with financial well-being is no child’s play. One such way of ensuring the same is through opting for a proper term insurance policy. But the age-old question that persists is that how much cover term insurance would suffice? This relies on so many things such as your objective of finance, obligations, and upcoming requirements of your family members. Let’s take it one step at a time to understand what is the best approach.
What Is Term Insurance?
Term insurance plan is an uncomplicated and inexpensive form of life insurance aimed at securing your family financially against your unexpected demise. Unlike other types of insurance policies, term insurance offers no investment or savings option and is strictly for pure life cover for the length of the specified term.
The real intent of obtaining term insurance is to ensure that your family can meet their financial obligations concerning daily expenses, education costs, or loan repayment upon your death. The right amount of coverage needs to be determined to achieve this goal.
Things to Keep in Mind While Choosing Coverage
- Your Current Income: A general rule of thumb is that your coverage should be 10-15 times your annual income. This ensures that your family can maintain their current lifestyle for several years even after you’re gone.
- Outstanding Liabilities: Consider any loans or debts, such as a home loan, car loan, or personal loan. These financial obligations should not burden your family in your absence.
- Future Expenditures: Consider your future financial plans of your family. These could be your kids’ education, wedding, or even business. Even the cost of education may be in terms of crores if your kid wants to study outside the country.
- Inflation: Don’t underestimate the role of inflation. The same money today may lose substantially in value in the long term. Choose a policy that has a sufficient buffer to cater to increasing costs later.
- Current Savings and Investments: If you have savings, investments, or other assets that may support your family, you may require less coverage. However, it is better to take the higher side than the lower side while calculating your family’s requirement.
Selecting the Appropriate Term Insurance Policy
Having a clear knowledge of how much you require in terms of cover, the second thing to do is to choose the most suitable life insurance cover. Below are some tips on how to go about making a well-informed decision:
- Compare Premiums and Benefits: Compare policies online based on the premiums, benefits, and claim settlement ratios. Don’t assume that the cheapest policy is always the best it should be based on your coverage requirement and offer reliability.
- Choose Long-Term Coverage: Choose a policy that will provide you coverage until the time when your family is self-sufficient financially or your main objectives are met. Policies are typically offered up to the age of 60-65.
- Riders and Add-Ons: Enhance your coverage with riders like critical illness, accidental death, or waiver of premium. These add-ons provide you additional financial security against unforeseen circumstances.
- Claim Settlement Ratio: Check the claim settlement ratio of the insurance company. The better the ratio, the higher the chances of your family’s claims being settled without any fuss.
- Review Periodically: Life circumstances alter promotion, new loans, or new members in the family could alter your coverage needs. Review and renew your policy periodically to make it current.
Why Term Insurance Is Important
Term insurance provides assurance. Term insurance is an economic security which ensures that your family will be economically secure even in the untimely circumstance of your demise. Even if you are healthy and young, it is judicious to have a term insurance policy at this stage. It is cheaper in terms of the premium when you are young, and you would be able to obtain a fair rate in the long term.
Additionally, term insurance can be an integral part of your whole financial plan. It fills up your investments and savings by compensating for specific risks like loss of income from untimely death.
Errors to Evitate
- Underestimation of Cover: People buy low coverage in order to conserve premium values but end up finding it too less later. Always think ahead regarding inflation and family requirements while making your final choice of coverage.
- Ignoring Health Risks: If you already have health issues or have a high-risk lifestyle, make sure your policy includes these aspects. Provide all the details to prevent claim rejection.
- Waiting Too Long to Purchase: The longer you wait, the more premiums you will be charged. Buy it early to pay lower premiums and enjoy better coverage.
- Choosing the Wrong Tenure: A policy that matures prior to your debt repayment can leave your family at risk. Fix the tenure as per your family’s dependency duration.
Real-Life Scenario
Consider the case of a young career-oriented individual who has settled and availed himself of a home loan. His immediate needs are to pay back the loan and fund his child’s education. By choosing a term insurance scheme that is whole-life in coverage, he will be able to meet these requirements even after he is gone.
This is why it’s necessary to review your financial goals, indebtedness, and stage in life while determining coverage. An appropriately planned term insurance policy can provide peace of mind and financial protection to your family.
Conclusion
The proper amount of term life insurance coverage is not a random number—it’s a personalized figure based on your income, loan payments, and your family’s aspirations. By carefully considering these factors and selecting the best life insurance policy, you can protect your loved ones’ future and sleep well.
Remember, investing in a term insurance plan today is an investment of minimal money today for the here and now of freedom from money in the years to come. Don’t procrastinate think of your needs and begin today on a secure tomorrow.
