How Much Term Life Insurance Cover Do I Need in India?
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How Much Term Life Insurance Cover Do I Need in India?

Term Insurance Quote
  • 16th Jun 2022
  • 612

How Much Term Life Insurance Cover Do I Need in India?

The primary purpose of purchasing a term insurance policy is to ensure that your dependent family members have sufficient money to take care of their needs if something unfortunate happens to you. However, one of the critical questions to ask when you buy a term plan is – how much coverage do I need? In other words, you must determine what the ideal sum assured is?

In India, many term insurance buyers tend to purchase a life insurance policy with a sum assured of Rs. 1 crore. To be fair, one crore is a significant amount. But most people tend to buy a policy randomly without giving a thought to the coverage amount. So, how to determine the right coverage amount? Read on to find out.

Before we get into the steps to determine the right coverage amount, let us first understand what term insurance is?

A term insurance policy is a pure protection plan, and it is the most basic form of life insurance. In term insurance, you pay a premium to the insurer for a specific period. In return, the insurance company promises to pay a sum assured to your family (nominee) in case of your untimely demise during the policy period.

Term insurance does not offer any maturity benefits, i.e., if you outlive the policy period, you do not get any survival payout. However, with term insurance, you can get higher coverage for an affordable premium.

Calculating the term insurance coverage amount

Deciding how much coverage you need is no rocket science, but it just requires you to keep a few critical factors in mind that are discussed below.

  • Your annual income
  • One of the critical factors to consider in deciding the term insurance coverage is assessing your current financial condition. Generally, the insurance experts suggest following the rule of thumb, i.e., your term insurance coverage must be at least 15 to 20 times your current annual income.

    So, if your current annual income is Rs. 10 lakhs per annum, it would be prudent to purchase a term plan with a sum assured of Rs. 2 crores. This amount will help your family take care of their annual expenses even with the rising inflation and maintain their current standard of living.

  • Assess your liabilities
  • Your financial liabilities like home loan, business loan, personal loan, credit card bills are vital factors to consider the term insurance coverage amount. In the event of your untimely demise, the repayment burden will fall on your family members, and they may face a hard time managing the EMIs as well as the household expenses. To avoid such an unfortunate situation befalling your family, it is better to choose a term plan with high coverage that meets all your existing liabilities.

    For example, if you are nursing a home loan and still have an outstanding amount of Rs. 30 lakhs. In this case, it is better to purchase high-value term insurance of Rs. 1 crore or more and choose a long-term plan for about 25 years so that your family can easily repay the loan and yet have sufficient funds at hand to carry out their regular expenses.

  • Know your financial goals
  • Your financial goals play a significant role in deciding the life insurance coverage. The whole purpose of buying a term plan is to keep your family protected from future uncertainties and provide them with a robust financial cushion so that they can maintain their current standard of living even in your absence.

    Also, you must ensure that the payout is large enough to help the family meet necessary expenses like children’s education and marriage, both of which require a considerable amount. Therefore, your term insurance payout must support your family to meet these expenses.

  • Current age
  • Your age when buying a term policy is vital because your financial needs and goals may change at different life stages. This also makes reviewing your policy periodically necessary. So, when you are newly married and have liabilities, you may need a high-value term plan compared to when you are nearing retirement age. At this stage, your children may have become financially independent, and you may have already paid off your loans.

    So, now that you are aware of the different factors to consider, do your due diligence and choose the right term insurance coverage to suit your specific needs.

- A Consumer Education Initiative series by Kotak Life

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