A term insurance policy is nothing short of a necessity in today’s times. It can make sure your family is protected at the worst of times and gives you peace of mind while you climb the ladders of life.
First, let’s understand term insurance
What is term insurance?
For those who don’t know what term insurance is, it’s a form of life insurance with a higher insured sum. As the name suggests, the insurance will be valid for a specific period of timeand among life insurance policies, term insurance policies tend to have the least premium amount.
If you are planning to buy a term insurance, one of the first things you should figure out is the coverage amount. When you are deciding on such an important thing, you must be very thorough and vigil to make sure you select adequate coverage. Through this article, let us figure out how you can select a cover that is right for you.
Factors to consider while choosing term insurance cover
- Age – Your age is an important factor here. If you are young and your dependents are not very dependent on your income, you have the liberty to choose an amount that is not very high. At the same time, if you are at that age where your family is dependent on your income very much, your coverage amount should reflect that.
- Size of your family – The bigger the family, the bigger the needs. Ideally, your coverage amount should be enough to provide for all your family’s immediate and long-term needs. So, when you have a bigger family, your coverage amount should go up.
For instance, if you are a family of two and your only dependent is your spouse, you could just choose an amount that would help your spouse financially. But if you have a family with children, your coverage amount should be enough to cover for their education till a time they are independent.
- Your family’s financial status – If your family has a lot of savings, you could have the liberty to choose a term insurance amount that is lower. Here, instead of your term insurance, your savings amount should be able to take care of your family. But at the same time, if your family doesn’t have that kind of wealth, a term insurance with an adequate amount becomes a necessity.
- Your relationship status – If you do not have a partner, your only dependents would be your parents, in most cases. If they have a pension amount and savings, your term insurance money could be lesser. But once you have a partner in your life, there will be more people depending on you. That means a bigger insurance amount.
- Your debts and liabilities – If you have debts, including loans that you are repaying, your coverage amount should be enough to pay off those loans and even after that, there should be still enough money to meet the needs of your family.
For instance, if you have a home loan of about Rs.15 lakh and you believe coverage of Rs.50 lakh is required is needed for your family, your ideal sum insured should be Rs.75 lakhs. You should also make sure you choose a plan that suits your situation from the numerous term insurance plans available these days.
- Your career status – Your insured sum should reflect your career status as well. At any stage, experts suggest that your term insurance plan coverage should be at least 10 times your annual earnings. While it is impossible to change your term insurance coverage every year, it’s ideal if you change when there is a significant change in your income and your family’s lifestyle. It’s wise to also account for changes possible in the coming years when you do so.
- Inflation – Rs.50 lakh now will not have the same purchasing power a decade later and hence, you should always take inflation into account while choosing a coverage amount for your term insurance plan.
Still confused? One easy way to iron out confusion is research. Learn about insurance policies, compare them, and even take the help of advisors if there is a need. You can also use tools like term insurance premium calculators to make sure you choose the plan that is right for you and your family.