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How Much Cover Should I Take In A Term Plan?

Term covers are pure life insurance plans that provide optimum coverage at a minimal cost. Here are factors that would make it easier to decide how much term plan cover you should have.

  • 3,556 Views | Updated on: Jun 26, 2024

Summary:

Nothing can replace the loss of a loved one. However, monetary compensation is akin to a soothing umbrella against life’s strains. Therefore, contemplate all the factors to decide an appropriate term insurance cover amount as a promissory against an uncertain future. Keep reading to know more. 

Life is unpredictable yet beautiful. Preparedness can diffuse unpredictability to a great extent and retain life’s beauty. Losing a loved one can bring a barrage of emotional and financial turmoil. Staying prepared is the best defense during such unforeseen circumstances. One such way is to buy a term insurance plan .

What is a Term Insurance Plan?

Term covers are pure life insurance plans that provide optimum coverage at a minimal cost. If the insured dies within the policy term, the insurance company pays the sum assured to the family.

Hence, the sum assured should suffice the financial needs of the policyholder’s family and should be in sync with the current and future living standards. Therefore, the term cover amount should not rely only on the insurer’s income; instead, you must decide the amount based on your family’s financial goals. 

Term Insurance Cover Amount: How Much Would Suffice?

Consider the below-listed factors that would make it easier to decide how much term insurance amount would suffice for your family-

1.Your Current Income

Most experts advise that a term insurance cover should be nearly 15 to 20 times an insurer’s annual income. For example, if the yearly income is Rs. 10 lakhs, the term cover should be between Rs. 1.5 crore to 2 crores. However, this advice should be taken with a pinch of salt. While it can help you zero in on the minimum cover, you may need more or lesser coverage depending on other factors, as mentioned below.

2.Your Age

Age is crucial as it indicates the enormity of your responsibilities. When you are young and just starting your career, you may not have too many responsibilities. However, you are more likely to shoulder more responsibilities as you age. Thus, you may need a slightly higher cover

3.Your Financial Liabilities and Assets

If the insurance holder dies early, the coverage should be enough to accommodate the instalments of the current debts and loans. It would help if you also considered the market value of the financial assets as they will help in nullifying the liabilities or helping meet the financial goals. 

4.Your Financial Goals

The objective of buying a term insurance plan is to comfortably meet the financial goals of the insurer’s family, in tandem with maintaining the living standards. Consider a few financial objectives that may impact the cover you will need-

  • Child’s higher education
  • Upcoming wedding expenses in the family
  • Building a retirement corpus
  • Buying a home

5.Premium You Can Afford

This is an essential factor as premiums should fit in easily in the insurer’s disposable income bracket. A higher term cover amount may seem enticing, but a very high premium may result in payment defaults and policy elapse.

Most experts advise that a term insurance cover should be nearly 15 to 20 times an insurer’s annual income. For example, if the yearly income is Rs. 10 lakhs, the term cover should be between Rs. 1.5 crore to 2 crores. However, this advice should be taken with a pinch of salt. While it can help you zero in on the minimum cover, you may need more or lesser coverage depending on other factors, as mentioned below.

Calculate Human Life Value (HLV) to Find the Right Cover

While the factors mentioned above can help you determine the right cover, they all work together under complex environments. It is difficult to put a value on human life. This is where HLV calculators can help you determine the right cover. They consider all the factors and suggest the right cover that you will need to secure your family’s future financially. Use such calculators online to find out the right coverage amount and buy the most suitable term plan. 

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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