"How much term insurance do I need?" - It is a common question in many people’s minds. It is ideally suggested to have a term insurance cover of at least 10 times of the annual income. However, the term insurance coverage amount depends on how one assesses their needs and makes a decision as per their risk appetite to ensure the right cover amount to secure their loved ones.
An online term plan is one of the most affordable insurance products compared to other life insurance products. Besides providing a host of benefits like tax deductions and exemptions, it helps in leading a stress-free life with the knowledge that your family will be financially secured even in your absence. However, it is imperative to have an idea of how much insurance to purchase. The concept of one-size fits all does not apply to term insurance. The size of the coverage will depend on a number of factors -
One of the primary factors to take into consideration while taking an online term plan is your age. When one is young, he/she is on the cusp of becoming the primary bread earner of the family. Most people start to build their lives in the twenties and thirties and it often leads to taking several liabilities like a car loan or a home loan. As age increases, the liabilities reduce and the income increases. The assets built over the years balance the liabilities, which reduces the need for substantial coverage. One would require lower coverage in the fifties or sixties than twenties and thirties. However, the premium of a term insurance plan is lower when the insured is young, so you can get a higher coverage at a lower rate if you buy the policy at a young age.
• Family expenses
The expenses to maintain a certain lifestyle is different for every family. No one wants his/her family members to downgrade or compromise with the lifestyle in their absence. Minor adjustments in the lifestyle is never a problem, but making major adjustments can be an issue. One should calculate the monthly or annual expenses of the family and then decide the coverage of the term plan. The sum assured should be sufficient to take care of necessities, if not discretionary items.
• Children’s education
In a knowledge-based economy, it is vital to ensure the best education for your child. The coverage of the online term plan should be decided after taking into consideration the educational needs of your children. The cost of education is rising at a rapid pace, and hence the sum assured should be adequate to fund your children’s education in your absence.
Insurance companies offer a variety of riders with the basic coverage plan. Riders are optional coverage enhancers offered with term plans at an additional cost. Riders range from a terminal illness and disability riders to riders that cover accidental death. The utility of riders varies, and one should take riders that are relevant to the insured. Taking unnecessary riders may increase the cost of the policy. Riders for premium payment waiver that waive all future premiums in case of disability or critical illness can be useful.
• Term Insurance Premiums
A term insurance promises to pay a fixed amount in the event of the death of the life assured. However, the payment is conditional on the timely payment of premiums by the policyholder. Many people take insurance far higher than they need. A high sum assured comes at a cost and one has to pay a comparatively higher premium for the entire tenure of the policy. It is advisable to commit to a term insurance premium amount that can be serviced without fail.
• Important life goals
"How much term insurance do I need?" cannot be answered without taking into consideration the important life goals to be achieved in the next few years. A term plan cover should not be considered only as an income replacement tool. The cover should also be adequate to take care of certain important life goals in the near future like children’s education, marriage, etc. Your family members will require financial support to meet the life goals planned, so why not take the life goals into account while buying an online term plan.
Multiple factors have to be taken into consideration before buying a term insurance plan. Neither is underinsurance good nor is over insurance desirable. One should always aim to have the optimum level of insurance. Factors like age, family expense, etc. will help you zero in the size of the cover, but you should also look at metrics such as the claim settlement ratio of the insurance company to ensure that the claim is paid seamlessly in your absence. A high claim settlement ratio simply means the insurance company accepts most of the claims that are filed. The purpose of taking a term plan would be defeated if the claim is not honoured after the death of the insured.