In this dynamic environment, the question arises: Is it a good time to invest in a term insurance plan in 2024? Well, the answer is yes! Term insurance is known for its simplicity and effectiveness in providing life coverage, and remains a cornerstone of comprehensive financial planning.
Individuals often find themselves at the intersection of financial prudence and future planning. The field of life insurance continually evolves, influenced by economic shifts, global events, and individual circumstances.
What is a Term Insurance Plan?
Term insurance covers are pure life insurance plans that provide optimum coverage at a minimal cost. In the case of the policyholder’s demise, the insurance company pays the sum assured to the family.
How much Term Insurance Cover Amount Would Suffice?
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.
Consider the below-listed factors that would make it easier to decide how much term insurance amount would suffice for your family-
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 ₹10 lakhs, the term cover should be between ₹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.
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.
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.
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 coverage you will need:
- Child’s higher education
- Upcoming wedding expenses in the family
- Building a retirement corpus
- Buying a home
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 elapses.
How to Calculate How Much Life Insurance You Need?
Deciding on the sum assured or life cover requirement is no rocket science. You need to keep a few critical factors in mind that are discussed below:
Assess Your Liabilities
Your financial liabilities like home loans, business loans, personal loans, and credit card bills are vital factors to consider before buying insurance coverage. In the event of your untimely demise, the repayment burden will fall on your family members, who may face difficulty managing the EMIs and household expenses. To avoid such an unfortunate situation befall your family, you must choose a term plan with high coverage that meets all your existing liabilities.
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 protect your family from future uncertainties and provide them with a robust financial cushion to 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.
Tips to Choose Life Insurance Coverage
Choosing a life insurance policy is a critical life decision. However, it is not the only factor to consider while selecting life insurance. The following are some suggestions for choosing the best life insurance coverage:
Use Life Insurance Calculators
Before obtaining any life insurance plan, use online calculators to determine the premium due for a specific life cover. It is quite easy to use them, and you can check how the premium varies with different sum assured, policy periods, payment modes, and payment terms.
Buy Life Insurance Online
Many benefits of purchasing life insurance online include the ease of comparing multiple policies, low rates, and speedy policy purchase. You can purchase the coverage without leaving your home or workplace, eliminating the need to contact a local agent or insurer’s branch office.
Term insurance should be a part of your financial portfolio but you must also choose one that helps you fulfil that purpose. You should not choose any term insurance only because it helps you save taxes or the premium is low.
Advantages of Term Insurance Plan
Term insurance plans offer a straightforward way to safeguard the financial future of your loved ones. Let us take a quick look at the benefits of a term insurance plan:
Affordability
One of the key advantages of term insurance plans is their affordability. Compared to other life insurance options, term plans typically have lower premiums. This makes them accessible to a wide range of individuals, including those with budget constraints. The cost-effectiveness of term insurance allows policyholders to achieve significant coverage without putting a strain on their finances.
Pure Risk Coverage
Term insurance is designed to provide pure risk coverage, meaning it focuses solely on providing a death benefit to the nominee in case of the policyholder’s demise during the policy term. Unlike traditional life insurance policies that may have a savings or investment component, term plans do not accumulate cash value. This simplicity ensures that the entire premium paid goes toward securing a substantial death benefit for beneficiaries.
Financial Security for Dependents
The primary purpose of term insurance is to provide financial security to dependents in the event of the policyholder’s death. The lump-sum payout offered by term plans can be a crucial lifeline for surviving family members, helping them cover living expenses, outstanding debts, and future financial obligations. This ensures that the family’s financial well-being is not compromised during challenging times.
Tax Benefits
Term insurance plans provide tax benefits under Section 80C of the Income Tax Act. Premiums paid for term policies are eligible for deductions up to a specified limit, offering an additional incentive for individuals looking to optimize their tax planning while securing their family’s financial future.
Peace of Mind
Perhaps one of the most significant advantages of term insurance is the peace of mind it provides. Knowing that your loved ones are financially protected in the event of your untimely demise allows you to focus on your present without undue worry about the future. This peace of mind is invaluable, contributing to overall emotional well-being.
Wrapping Up
Economic uncertainties, rising healthcare costs, tax planning considerations, and innovative insurance offerings collectively make purchasing a term insurance plan a prudent move in the current financial scenario. As individuals go through the stages of financial planning, the decision to invest in a term insurance plan in 2024 can provide a solid foundation for long-term security and peace of mind.
FAQs
1
What does term insurance cover mean?
Term insurance is a type of life insurance that provides the policyholder with financial protection. The company pays the beneficiary the death benefit if the insured person passes away during the policy period.
2
What does term insurance not cover?
Death caused by self-caused injuries like suicide is not covered by term insurance plans. Term plans include coverage for death caused by any serious illness. It is required that you mention any illnesses you have when buying a term insurance plan.
3
Is the accident covered by term insurance?
Accidents are indeed covered by term insurance. In a conventional term insurance policy, the sum assured is paid regardless of the cause of death, including those brought on by illness or accidents.
4
What is a good amount for term life insurance?
A suitable sum for life insurance, according to the majority of insurance firms, is six to 10 times the yearly earnings.
5
What age should term life insurance end?
Term insurance is a fundamental form of protection that offers a death benefit in the event of the policyholder’s untimely passing during the policy term. Term insurance can be purchased by a policyholder from the age of 18 to 65.
