Is ₹1 crore term insurance good enough cover?

When you buy term insurance, you ensure that your family gets sufficient financing in case something happens to you. The way term insurance works is, if you pass away unexpectedly within your policy term, your family will get a lump sum death benefit payout for all their future expenses.

Now we’re talking about something that may happen way into the future, probably 10-15 years down the line. But when you purchase term insurance, you have to choose the insurance cover at the present time. So it can get a little tricky to estimate exactly how much term insurance cover would be sufficient in the future for your family. There are many methods that one can use to calculate the required term insurance cover.

However, there are many insurance agents, representatives and even policy buyers who directly come to a figure without due consideration. And that magic figure is Rs. 1 crore, which is quite popular in the insurance market. But is Rs. 1 crore a good enough cover? Let’s find out.

Rs. 1 Crore: Is it the magic number?

First and foremost, the amount of term insurance cover that your family will require in the future cannot be arbitrarily chosen. Rs. 1 crore may seem like enough now, but you must do the necessary calculations to arrive at a figure, even if that figure ultimately comes down to Rs. 1 crore or thereabouts. Ideally, the assured sum should be an amount that can comfortably take care of future goals and expenses of the dependent family. These expenses include education fees for children, rent, EMIs, wedding expenses, day to day expenses etc. Additionally, the standard of living you envision for your family in the future also has a bearing on how much term insurance you would need.

How To Calculate Whether Rs. 1 Crore Is Enough?

One can easily calculate how much term insurance is enough for their family in the future. Basically, the term insurance cover required should be the present value of all future goals and expenses after subtracting the accumulated wealth and assets.

Let us look at this via an example. Let us assume you’re planning to purchase term insurance and currently, your monthly expenses are Rs. 40,000. Annually, your expenses would then be Rs. 4.8 lakh. As per expert’s recommendation, one should have a life cover of at least 10 times their yearly expense. So in this case, your term insurance must be at least Rs. 48 lakh.

Now let’s come to the other expenses. Suppose you have an existing car and home loan with outstanding balance of Rs. 55 lakh.

Additionally, you want to keep at least Rs. 20 lakh for your children’s education.

Finally, you want an additional Rs. 80 lakh as retirement corpus for your spouse.

Adding all of the above, the total comes down to approximately Rs. 2 crore. So this must be the total amount your family would need. But you may also have some accumulated wealth or assets, so you must subtract those from this amount. Let’s assume you have Rs. 20 lakh in various investments that can be readily accessed. So after reducing this amount, your total insurance requirement would be Rs. 1.8 crore.

Conclusion

Thus, in the above example, Rs. 1 crore, which initially could have seemed enough, is about Rs. 80 lakh short. If you would have purchased a policy without the necessary calculations, your family may have faced financial troubles in the future. Hence, do not go with an arbitrary number like Rs. 1 crore for your term insurance. Carefully consider the financial requirements in the future and come up with an amount.