4 factors to consider when choosing sum assured for your term plan

One of the most important things you can do to plan your future is to ensure that you and your family are financially secure throughout your life. This can be done by keeping in mind certain aspects like preparing for expenses that you will have to incur in the future, like your child’s education, marriage, retirement planning of your spouse etc. However, if you are the family's sole breadwinner, it may be difficult for your loved ones to sustain and cover such expenses in the event of your premature death or any other mishap.This is where a term plan will come into play. 

A term insurance plan will act like a blanket of protection for you and your family. Under a term  plan, you can get a large amount of life cover by paying a relatively low premium. However, before investing in a term plan one needs to consider certain factors. The most important being, making sure that you are choosing the right sum assured.  Sum assured is the pre-decided sum that the insurance company pays to the beneficiary in the event of your unfortunate demise during the policy period. According to experts, one should go for a policy with a sum assured of at least 10 times his/her annual income. 

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Further, ensure that your term policy's sum assured should ideally cover the following expenses for you and your family members:

1. Monthly household expenses 

Enrolling in a term life insurance policy is primarily intended to ensure that your family has enough money to provide for themselves in the event of your untimely death. Thus, the first expenses that you would want your term plan to cover is the day to day household expenses such as groceries, bills, medicines etc. So that, they don’t have to compromise on their living standards. Thus, one needs to calculate the monthly expenses and buy a cover accordingly. For instance, if your monthly household expenses are around 50,000 which comes to Rs 6 lakhs per year. It is generally advisable to provide coverage at 10-15 times of the annual expenses. 

2. Cover outstanding loans 

One of the biggest risks, when you purchase a home on a loan, is that if something were to happen to you, especially if you are the sole bread earner of the family, the responsibility of paying this monthly amount would fall on your family. This can be extremely stressful for them emotionally as well as financially. However, if you have invested in an adequate term plan, then your plan will come into play and help your family pay off the remaining dues. Consequently, choosing an adequate sum assured, especially if you have loans, or debts are the best possible option to stay financially safe. 

3. Retirement planning for spouse

It is important to make sure that after retirement your spouse is financially secured, when you are unavailable to support them. One way of securing them without having to disturb savings is by investing in a high sum assured term insurance plan. The term plan will act as an income replacement tool for your spouse, so that even if they don’t have monthly income, your spouse can peacefully rely on the term plan. Ideally, if your monthly expenses are around 50,000 your spouse would need a retirement kitty of 80 lakhs. 

4. Child’s education and marriage
 
When it comes to investment planning, prioritizing your child's future should be your utmost priority. Considering the rising education costs, health care costs, and wedding costs, having a solid financial plan in place for your child is essential. For instance, higher education at top institutions can cost anywhere between Rs. 10 lakhs- 15 lakhs. In addition to that,  for marriage, you're looking at roughly Rs. 25–30 lakh more and if you have two children the expense can range from Rs. 50-60 lakhs. Therefore, a term insurance plan should keep you covered in these stages of life by giving you financial protection throughout. Hence, having a sufficient sum assured will keep at peace. 

To conclude, you should invest in a term plan in which you don’t need to compromise on your future needs and requirements. It should provide sufficient assistance to your loved ones without having to compromise their living standards in case of your absence.  
 

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