Many of us in India are now getting aware that a Term Plan is important, but do not know what really is the extent to which we need to protect our family financially. So we end up postponing our buying decision, or sometimes not buying at all, putting our families to very high risk financially.
There are 2 things that you need to protect financially through a term plan.
1. Your Future Income
This is what you will contribute to your family over time. In case you die, your family can get the benefit of this income through the life insurance cover in a term plan.
- If you are in the age group 25-35, take a life cover of about 15-18 times (at least 12 times) your current annual income. This is because you have a long working phase ahead of you and you will therefore contribute a huge amount over your working life.
- If you are in the age group 35-45, take a life cover of about 10-15 times (at least 8 times) your current annual income.
- If you are in the age group 45-55, take a life cover of about 5-10 times your current annual income. This is because you have a shorter working phase ahead of you and you will therefore contribute lesser than a younger person over your working life.
In all cases, the life cover should be taken to cover you till the age of about 60-65 years and not beyond.
2. Your Existing Loans/Debts/Liabilities
In case you have taken a loan, e.g. housing loan, and are paying EMIs, and if you were to die, your family will need to immediately pay back the remaining amount of the loan at the time of death. Your term plan can help you pay this back.
Now in case you don’t have a term plan in both the above cases, you may have to start liquidating some of your other existing assets e.g. your house, your land, your FD, etc. to manage living expenses, children’s education and marriage, health-related expenses, etc. That can be very difficult for your family since these expenses will constantly keep reducing the wealth they have, and with every passing year inflation will make it more and more difficult to manage it.
So it is strongly advised that both the income and well as loans are adequately covered through a term plan.
Another important thing. In case you are planning to take a loan in the future, take adequate life cover protection BEFORE the loan is sanctioned to you, and not after. In fact, having adequate insurance cover actually INCREASES your credibility score for sanction of your loan.
How to calculate the Term Plan life cover (Sum Assured) required :
Many of us get to the stage of buying a term plan but end up buy cover of the wrong value. So they end up having too much or too less insurance coverage for their families.
Here’s a table that explains all considerations about what all you need to cover through a term plan and why.
Click anywhere on the table below to see it full screen.
When deciding for yourself, keep each of the above factors in mind (especially inflation). And work out a very broad level of requirement. It doesn’t have to be very accurate. After that, just add another 20% (better to be over-insured than under-insured) to that and then buy your term plan.
Vinay, we do not recommend brands on this website. We only suggest product types. This is to ensure that biases are kept out. Hope you will understand that. So pick up a company with more vintage and experience, they are more likely to give your father the term plan. You will need to establish the income through necessary income proofs.
Also, we would surely recommend adequate health insurance cover given his age. Not a floater policy but a individual one. If you take at least 7-8 lakhs of Sum Insured, the need for another Critical Illness policy reduces.
Truly appreciate your reply. So, can you kindly sugest a term insurance plan for my dad with below profile
DOB – April 3rd 1955 ( 61)
Profession – Agriculturist.
Income – 18+ Lakhs
Education – Below Metric
Health – Completely fine ( Got a health check up 2 months before and has no problems)
He does no hardcore activity. All he does is managerial activity i.e. basically supervising the workers in his fields.
No political exposure
No smoking
No boozing.
I would appreciate, if you could suggest which term insurance companies who could provide coverage for the above profile. If not the term insurance which are other insurance that will be helpful to cover all liabilities. Finally, is a health/critical illness needed to bought.
Thanks
Vinay
Dear Vinay, sorry for the delay in our response.
Yes, it is a technical rejection that is indeed possible.
The eligibility for a high risk product is based on norms for the product as decided by the insurance company. Some may choose to keep risk low through very tight norms, while some other companies (especially those which are older and have better claims experience) may take higher risk and relax norms.
Please let me know if a term insurance policy can be rejected due to educational qualifications. My father is below metric and earns an income of 18+ lakhs a year through agriculture. However, PNB Metlife rejected insurance stating my father educational qualification and also mentioned it is as per IRDA guidelines.
Ideally term insurance should replace income that is to be earned during the working lifetime only, i.e. till you retire. In case death happens during that period, the term plan helps. Going beyond that is logically incorrect since you would not have earned an income anyway. Please check this link below, we hope it gives you a perspective with regard to your question.
https://www.mintwise.com/blog/term-insurance-policy-age-60/
As we age, We tend to accrue wealth (Assuming one is a responsible investor) which in turn takes care of the family needs so as we grow old not only our future earning potential reduced, we already earned for more years and accrue wealth. So this effect needs to be doubled while considering the term insurance value. thoughts please?
Ravi, these scenarios are only examples and not exhaustive. You are absolutely right. It will impact the calculations. In fact, if someone stops or starts earning, that person’s life insurance cover requirement will be impacted even more.
We will launch a calculator shortly. Thanks.
Ravi, these scenarios are only examples and not exhaustive. You are absolutely right. It will impact the calculations. In fact, if someone stops or starts earning, that person’s life insurance cover requirement will be impacted even more.
We will launch a calculator shortly. Thanks.
Very nice article. In the table, you have ignored the scenario of a spouse starting or stopping to work. That will also change the life insurance requirement for a person.
Also, can you help us with a calculator?
thanks for all the insights.
Very nice article. In the table, you have ignored the scenario of a spouse starting or stopping to work. That will also change the life insurance requirement for a person.
Also, can you help us with a calculator?
thanks for all the insights.
Replied in the earlier comment.
Replied in the earlier comment.
Rohit, thanks for the appreciation. It’s our fodder.
On your queries, I understand that
– your home loan is already covered
– your existing insurance (Rs. 1 lakh) is minimal and can be ignored.
– your group insurance (whatever it is) will be available only when you are an employee. What if you decide to do something on your own in your early 40s? buying a TP then could be expensive.
Assuming you have no other liabilities, you only need to cover for (a) spouse and her expenses throughout life (b) children and their expenses throughout their lives.
My suggestions :
1. Buy 1 term plan of about Rs. 1 crore (~ 8 times your income) now. Buy it till age 60 years.
2. Just before you have an expanded family, top up the cover with some more insurance, say Rs. 1 crore. Buy that also till age 60 years, and not for beyond that age.
3. Keep reviewing your life cover every 4 years. (I will put up a calculator shortly for this)
Given your age (32 years), your life-stage (married, no kids) and your current income bracket, your earning life has a long way to go, and your financial responsibilities even further. It is wonderful that you are already thinking about planning for financial robustness in your life. Really appreciate that – urging other readers to follow this.
Rohit, thanks for the appreciation. It’s our fodder.
On your queries, I understand that
– your home loan is already covered
– your existing insurance (Rs. 1 lakh) is minimal and can be ignored.
– your group insurance (whatever it is) will be available only when you are an employee. What if you decide to do something on your own in your early 40s? buying a TP then could be expensive.
Assuming you have no other liabilities, you only need to cover for (a) spouse and her expenses throughout life (b) children and their expenses throughout their lives.
My suggestions :
1. Buy 1 term plan of about Rs. 1 crore (~ 8 times your income) now. Buy it till age 60 years.
2. Just before you have an expanded family, top up the cover with some more insurance, say Rs. 1 crore. Buy that also till age 60 years, and not for beyond that age.
3. Keep reviewing your life cover every 4 years. (I will put up a calculator shortly to help review life insurance cover)
Given your age (32 years), your lifestage (unmarried) and your current
income bracket, your earning life has a long way to go, and your
financial responsibilities even further. It is wonderful that you are already thinking about planning for financial robustness in your life. Really appreciate that – urging other readers to follow this.
Hi, thanks for such a wonderful & thoughtful insight into term plans.
I’d gone through all your articles on term plan and agree with the fact that one should split the cover to secure all financial goals.
I’m planning to have a two TP – (i) Rs 75 Lac for 25 yrs & (ii) Rs 1 Cr for 35 yrs (My age: 32). Following r few important facts:
a) I’ve only Rs. 1 Lac of cover besides what my employer has taken under group insurance
b) I’m running with a home loan of Rs. 23 Lac outstanding for which EMIs will start after three years. The bank has already secured the property & me against the loan sanctioned
c) I’m married but having no children yet
d) my income bracket is Rs. 12-15 Lac pa
Seek your advise whether what I’m planning in respect of splitting life cover is good or not considering the fact that all major junctures of my life have not yet arrived.
Hi, thanks for such a wonderful & thoughtful insight into term plans.
I’d gone through all your articles on term plan and agree with the fact that one should split the cover to secure all financial goals.
I’m planning to have a two TP – (i) Rs 75 Lac for 25 yrs & (ii) Rs 1 Cr for 35 yrs (My age: 32). Following r few important facts:
a) I’ve only Rs. 1 Lac of cover besides what my employer has taken under group insurance
b) I’m running with a home loan of Rs. 23 Lac outstanding for which EMIs will start after three years. The bank has already secured the property & me against the loan sanctioned
c) I’m married but having no children yet
d) my income bracket is Rs. 12-15 Lac pa
Seek your advise whether what I’m planning in respect of splitting life cover is good or not considering the fact that all major junctures of my life have not yet arrived.
HI, thanks for such a wonderful insight into term plans..!!!
After reading all of your articles on term plan, I also feel that I should split my life cover as per the objectives, as most of the prominent junctures in my life are about to come. I wish to take two TP- (i) Rs. 75 Lac for 25 years (ii) Rs. 1 Cr for 35 years (I’m currently 32 years old & non smoker).
I wish to take your advise on my decision. Some key facts are as below:
a) I’ve a total life cover of Rs. 1 lac besides what my employer provide under Group Insurance
b) I’m running with a home loan of Rs. 23 Lac which is outstanding. EMI would start after 3 years. Bank has secured their home loan against cover on property & me.
c) I’m married but having no children yet.
d) My income bracket is between 12-15 Lac pa.
Solicit your advise.
HI, thanks for such a wonderful insight into term plans..!!!
After reading all of your articles on term plan, I also feel that I should split my life cover as per the objectives, as most of the prominent junctures in my life are about to come. I wish to take two TP- (i) Rs. 75 Lac for 25 years (ii) Rs. 1 Cr for 35 years (I’m currently 32 years old & non smoker).
I wish to take your advise on my decision. Some key facts are as below:
a) I’ve a total life cover of Rs. 1 lac besides what my employer provide under Group Insurance
b) I’m running with a home loan of Rs. 23 Lac which is outstanding. EMI would start after 3 years. Bank has secured their home loan against cover on property & me.
c) I’m married but having no children yet.
d) My income bracket is between 12-15 Lac pa.
Solicit your advise.
Rajakumar, the maximum term insurance that insurers will offer you depends on the following – your age, gender and most importantly your annual income. This formula is different for different companies and there is no one place you can find them all listed together. Some comparison websites will give you a broad idea. Most companies give you life cover up to 20 times your gross annual income (as long as you are not beyond 40-45 years of age).
A small note here. Rather than what companies offer, focus more on how much you actually need, ensuring you are careful to account for all liabilities as well. That is more important than everything else.
Rajakumar, the maximum term insurance that insurers will offer you depends on the following – your age, gender and most importantly your annual income. This formula is different for different companies and there is no one place you can find them all listed together. Some comparison websites will give you a broad idea. Most companies give you life cover up to 20 times your gross annual income (as long as you are not beyond 40-45 years of age).
A small note here. Rather than what companies offer, focus more on how much you actually need, ensuring you are careful to account for all liabilities as well. That is more important than everything else.
Your articles are very much informative and use full.
May I know the maximum term insurance cover I can go for?
Your articles are very much informative and use full.
May I know the maximum term insurance cover I can go for?
No. When you pay EMIs, some part of your Rs. 30 lakhs principal gets reduced with every installment. Find out from your lender/bank what is the amount of outstanding principal as of today, and take only that much more.
Ideally take a SEPARATE term plan for cover any loan/debt. Read the article below for clarity.
https://www.mintwise.com/blog/why-you-should-split-term-insurance-plan/
No. When you pay EMIs, some part of your Rs. 30 lakhs principal gets reduced with every installment. Find out from you lender/bank what is the amount of outstanding principal as of today, and take only that much more.
Ideally take a SEPARATE term plan for cover any loan/debt. Read the article below for clarity.
https://www.mintwise.com/blog/term-insurance-plan-split/
hello. i have a housing loan which i took nearly 6 years past. it was for 30 lakhs rupees. should i take that much more term insurance?
hello. i have a housing loan which i took nearly 6 years past. it was for 30 lakhs rupees. should i take that much more term insurance?
Thanks Babulal.
We are working on a calculator and will intimate you the moment it is ready.
The table that you have shown in this article on how to calculate the life Insurance cover, is absolutely brilliant. But it will be good if you can give some kind of example to explain how to exactly calculate it .
This blog contains best information about term insurance.
Thanks, Arati. Being the cheapest online plan in the market, Aegon scores very well on pricing, but is currently low on claims ratio because it is a relatively new company with a small overall base. Also, the ratio of pure term insurance in their portfolio is (probably) the highest unlike many other companies. I am sure Aegon will get better on this parameter over time.
The choice of product is yours completely. At MintWise we will not attempt to influence it, just provide you with information and advisories that will guide you profitably.
Nice blog. I like it very much. For term insurance I prefer the AEGON Religare term insurance plan.