How much term insurance cover should you buy?
In personal finance, it is often said that it’s easy to plan for things that are certain, and much more difficult for the uncertainties. Yet, most people fail to plan for the inevitable certainty of life: one’s death. According to this report, 988 million, which is almost a billion Indians, are not covered by any form of life insurance .
Indeed, the finality of death is something that one is able to grasp only when the deceased is someone they have known and cherished, and perhaps someone they depended on. In such situations, death not only takes an emotional toll, the aftermath of losing a family member also entails major financial hurdles, especially if the deceased happened to be the sole breadwinner of the family.
Importance of Term Insurance
Hence, it is crucial to plan for the financial security of your loved ones in case of your untimely death. While life is priceless, a term insurance can make sure that your family has enough money not only to survive, but also to have a decent life even in your absence. With term insurance, you pay defined premium to the insurer every year, or for a specific number of years and in return, the insurer promises to pay the sum assured to your family in case of an unfortunate event during that tenure.
Among other life insurance products, term insurance offers higher life coverage for a lower premium as compared to other insurance products. It is hence one of the preferred life insurance option advised by most experts. Some of the leading insurers like Bajaj Allianz Life Insurance also provide additional cover such as critical illness cover and accidental cover at a nominal extra cost along with their term insurance plans.
How much term insurance do you need?
Personal finance experts recommend that a term insurance cover should be at least 15-20 times that of one’s annual income. However, calculating the amount of term insurance that is suitable for your family is not a one-size-fits-all process. Here are a few factors one must consider while drawing an estimate of the insurance cover that they would need.
Age: Your age at the time of taking the policy is an important determinant in deciding how much insurance you would need. Those in their late 20s are in the early stages of their career and may not have too many liabilities, and may feel that they do not need too large a cover. However, as one progresses into their 30s and 40s, chances are they would be married and may even have children. Home loans or car loans may also be in the picture, which could translate into further liabilities. At this age, they may need a larger cover to make sure their dependents are not faced with a sudden burden of those EMIs in case of their unfortunate death and that they are able to sustain their lifestyle without too many compromises. Term insurance premiums increase with age and one can get a higher cover at an affordable cost when they are young. So, the sooner one opts for a term insurance plan, the better it is.
Current expenses and lifestyle: When estimating the cover amount, it is important to factor in the standard of living one wants for their dependents. Downgrading one’s lifestyle is a huge setback that no one would want to have to deal with. Moreover, even in the event of being left with no other option than to be frugal, basic necessities cannot be done away with. So in order to arrive at a rough estimate of the cover amount, one must take into account the monthly expenses their dependents may incur, as well as the number of years for which they would need a stable monthly income. And of course, the relentless march of inflation needs be taken into account.
Loans: No one would want their family to be burdened with hefty EMI payments on loans that they took like a home loan, should something untoward happens to them. While deciding on the cover amount, it is critical that one takes into account any active loan. Given the large debt associated with home loans, it is always advisable to take a separate term insurance cover of the loan value so that the repayment of that loan is covered in case of a mishap.
Assets: While liabilities are an important factor, the good news is that one’s existing assets reduce the amount of life insurance cover they would need. The savings and investments that one accumulated over the years can be used by their family to meet the required expenses. These assets could include financial savings as well as assets like a property.
Children’s wedding and education: While a term insurance can be a boon for your family and save them from a lot of suffering, education for your children is another foolproof way of ensuring that they lead decent lives and become financially independent in your absence. To ensure that your child’s future is safe, count the number of years of formal education that your child would need and the cost of the same. That amount should also be considered before finalizing your life insurance cover.
Besides education, you would also have to bear in mind that your family should not face financial constraints when your children should choose to get married. The term insurance cover will keep the wedding bells ringing even if you are not around to witness the same.
Choosing the right amount and right service provider
While estimating the value of the term insurance cover is not an exact science, these steps should help you understand how much money would be needed to ensure financial stability for your family. To make things easier, some insurance providers, like Bajaj Allianz Life Insurance, have online term plan premium calculators that can help one arrive at the number that could be suitable for them. It becomes important to evaluate your needs as per your standard of living and take a call on the basis of your risk appetite.
The company also provides a range of products to fulfill your needs as per your Life Goals. You may consider the Bajaj Allianz Life Smart Protect Goal – A Non Linked, Non-Participating, Pure Life Term Insurance Plan. By opting for this, you not only get back the entire premium at the time of maturity(1), but also protect yourself against financial loss in the case of 55 critical illnesses(1). For only Rs. 18 per day, you can get a cover of Rs. 1 crore (2). There is also a 3% discount on online purchase of this policy (3).
You could also consider the Bajaj Allianz Life e-touch Online Term Plan, which protects you and your family from a monetary crisis resulting from a critical illness, accidental disability, or death (1). In case of Accidental Total Permanent Disability (ATPD) of the life assured, all future premiums are waived, and the policy continues. On the death of the life assured, the sum assured is paid, and the policy is terminated.
However, since priorities keep changing, and so do financial requirements, it is always advisable to revisit and re-evaluate your term insurance cover every few years. What remains unchanged is the need to secure the future of your loved ones with a term insurance plan.
(1)Product feature/benefit mentioned above are dependent on variant chosen
(2)Above illustration is considering Male aged 25 years | Standard Life/ Non-Smoker | Life Cover Variant | Policy term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Annual Premium Payment Mode | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only.
(3)Discount is available for regular premium and limited premium payment frequency under all variants of this product.