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.