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How Much Term Insurance Should You Buy

  6/5/23 10:55 AM

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‘How much?’ is often the question on the tip of every Indian’s tongue whether we are buying groceries or an insurance plan. Finding an answer to this question, especially about term insurance, is an important prerequisite in your quest to finding a cover that will provide comprehensive protection. If you are buying online term insurance, certain factors need to be aligned with your lifestyle to choose the right cover. However, before determining the required cover, it is important to know what a term insurance policy is.

What is Term Insurance?

If the world of insurance perplexes you, a term plan puts your worries at ease as it is the simplest insurance cover to understand. Acknowledging the unpredictable uncertainties of life, a term insurance policy enables you to ensure the financial protection of your family even in your absence. When you buy a term plan, you can protect your loved ones for the pre-determined tenure of the policy.

For this cover, you are expected to pay a term insurance premium to your insurance provider. The term insurance premium depends on factors such as age and health. If you are buying online term insurance, you can use the free term plan calculator to determine the cost of your insurance cover. As every individual leads a different lifestyle, the best term plan would recognise these diverse facets to provide wholesome protection.       

Who Needs a Term Insurance Policy?

As the meaning of the term plan is established, the next step is to determine whether or not you need a life insurance cover. Term insurance is an important element in financial planning. There is often a misconception associated with life insurance that it is only necessary for those who are married. On the contrary, any individual who has financial dependents is advised to buy a term plan.

Additionally, individuals who have financial debt can also benefit from term insurance. The cost of an insurance policy often discourages buyers; however, the term insurance premium is a negligible cost in the light of the cover that it offers. The cost can be reduced further if insurance-seekers buy online term insurance. Moreover, term insurance offers you peace of mind as, in the unfortunate event of your untimely demise, you can ensure that your family and loved ones need not worry on the financial front.       

How Much Term Insurance Should You Buy?

Revisiting our initial question, certain factors need to be considered to buy the best term plan for you that promises complete protection. Depending on your personal and financial circumstances, you need to analyse the amount that would be needed as an income replacement for your family in your absence. Insurance-seekers often fail to incorporate inflation into their insurance cover; however, this is an important element that needs your consideration.

Here are the crucial factors that need to be incorporated in your calculation for the term insurance amount:

1. Your Current Financial Standing

The first step to calculating how much term insurance is required is examining your current annual income. As an insurance rule of thumb, it is recommended to buy at least 10 to 15 times your annual income, factoring in inflation and the rising cost of living. Considering this, if you have an annual income of ₹5 lakhs, it is prudent to opt for a term insurance cover of at least ₹75 lakhs.

However, this number also depends on your age while buying the term plan. This is because, when you are buying a term plan at a younger age, you need to account for a higher inflation growth, along with multiple changes in the liabilities and dependencies. The older you get, the lower your dependencies are. Thus, up to 35 years of age, your term coverage should be 15-18 times your annual income. This number goes down as you age, with the 35-45 years age group needing around 10-12 times the annual income and the older age group needing 5-10 times.

This should be further finalised based on the factors mentioned in the subsequent points.

2. Your Current and Future Financial Assets and Liabilities

Foresight is essential for buying the right term plan that will protect your family against current and future financial liabilities. Insurance-seekers must therefore account for their assets and their outstanding loans and debts while selecting the sum assured for the life insurance plan.

When it comes to assets, you need to observe your investments which might include your provident fund, fixed deposits, mutual funds, real estate, etc. The total of this amount that would readily be available to the family can be deducted from your insurance coverage amount.

In the event of your untimely death, your family can find it challenging to manage EMIs, loans, and debts while managing household expenses. More so if you are the sole source of family income. Considering this, it is important to buy a cover that will meet your current and future liabilities.

3. Your Financial Milestones

We all have a financial roadmap marked by important milestones. The primary objective of buying term insurance is to help retain your family’s lifestyle even in your absence. Meeting important financial goals such as the higher education of your child, planning for the marriage of your child, setting aside a retirement corpus for your spouse all need to be incorporated into the term plan.

4. Your Term Insurance Tenure

The duration of your term plan cover is an important factor while buying an insurance policy. You need to ensure that you are covered during the most vulnerable phase of your life - your old age.

A term plan calculator that is available for free online can help decide on the right tenure of your term insurance. It is advisable to buy a term plan when you are young because the term insurance premium increases with age.  

Zindagi Unlimited with Edelweiss Tokio Term Plan

The Edelweiss Tokio Life Insurance Zindagi Plus plan is designed to ensure your happily ever after. Some of its unique advantages include:

  • COVID-19 cover to protect your family during the pandemic
  • The better half benefit that gives your spouse an additional 50% cover in your absence
  • Discounts on premiums with high sum assured
  • No medical option for a sum assured of up to ₹99,99,000

You can even customise your policy with Edelweiss Tokio Life to suit your financial requirements. It is a flexible term plan that comes with a choice of four riders that act as an income supplement against unpleasant scenarios of life.  

To Conclude

Term insurance plans are a great way to support your family and loved ones financially, even in your absence. However, to benefit from the policy, it is essential to incorporate the necessary financial elements into your planning. Additionally, because financial needs can change over the years, it is important to revisit your term insurance cover every five years.

 

 

Chirag Iyer - BFSI Enthusiast

Chirag is a writer and an avid reader who loves to drink coffee! His other interests include boxing, karate, and singing.

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