How Much Term Insurance Cover Should You Have?

How Much Term Insurance Cover Should You Have? 

In general,

(Your yearly income) x (25-20 times) + loans/liabilities = Total sum assured in your term plan. 

Term plans come with affordable premiums, so paying them monthly/quarterly or annual will not be an issue. You can also consider purchasing riders if your income increases. The premiums increase with age, so make sure you buy your term plan at an early age. This way, they will be the same throughout your term tenure.

The Human Life Value (HLV), is a figure that depicts the future value of income expenses, liabilities, and investments. This number is used to calculate how much money is needed to protect your dependents' lives with term insurance in the unfortunate event of your demise.

7 Factors are considered when evaluating the HLV of a person. These include:

• The person's age
• Occupation
• The person's gender
• Estimated retirement age
• Yearly income
• Work perks
• The person's monetary information about the family 

Factors to Consider While calculating the Term Plan Cover

1. Age

   The amount of insurance you need depends on your present age. You are likely to become your family's breadwinner if you are young (the late twenties and thirties). Your life's balance sheet is likely to have more liabilities than assets. Your assets will become equal to your liabilities as you earn and save more. This is the reason your life cover is less in old age compared to the young age.

2. Present Operating Expenses of the Family

   Different people with different incomes may have different lifestyles. Your family is habitual to the lifestyle you provide. In the event of uncertainty, a lifestyle downgrade will not be easy for anyone. However, if the need requires so, one has no option but to downgrade his/her lifestyle. Even while doing so, meeting the basic lifestyle requirements cannot be discounted. So, consider calculating your family's operating expenses (monthly and annually) to calculate the term plan's cover. 

3. Children's Education

   Education shapes a child's future. You would want your child to have the best education so that he/she can make informed decisions when he/she grows up. Keeping this in mind, consider calculating the number of years you will need the funds to support your child's future.

4. Loans

   This is one of the most important factors to consider when calculating the term plan cover. Banks usually advise insuring your loan when you take one. It is good protection in case things go south. For example, these days, personal loans, car loans, and loans to purchase expensive gadgets are all common. Consider any unprotected loans and include them in your term plan cover calculation. This will assist in paying your loan back in your absence.

5. Assets

   When calculating the cover for your term plan, consider the assets you have. They will influence your term plan cover. For instance, if you have purchased a car for 10 lakh Rupees and paid 6 lakhs, consider taking the rest 4 lakhs in your term cover calculation.

6. Choosing of Riders

   Many insurers offer various add-ons (called riders) to make the policy more beneficial for the policyholders. These riders can be helpful if you have specific needs. However, these riders come at an additional charge. It is crucial to determine the need of a rider before adding it to your base term plan. If you don't find them useful, it is okay not to take them. However, some riders are highly recommended. For instance: Waiver of premium rider. If you (god forbid) become seriously ill or suffer a disability, this rider will waive all future premiums. In the event of your unfortunate demise, your family will be provided additional financial support by the accidental death rider.

7. Premiums

   You are obligated to pay your premiums for any insurance policy you purchase. Though it is important to have full coverage, some people may go too far and buy more than they need. Your disposable income should also be considered when determining how much premium you will pay. Your policy can end up being lapsed if there is a default in premium payment.  

8. Family’s Future Expenses

   You must consider other future expenses of your family also, like the marriage of your children. According to Indian orthodox traditions, marriage is a significant affair that is usually expensive. This is why you should also make sure your family doesn't face financial hardships in your absence. So, consider calculating a lump sum amount that will keep your children’s wedding bells ringing if you are not there.

   You can determine how much insurance coverage you need by taking the above factors into account. After you've identified your needs, you can compare the various insurance policies available on the market.

Final Word

Keeping these factors in mind while finalizing a term insurance plan can enable you to select a suitable policy. It can be a tedious task to go through the brochure of every insurance company to select a term insurance cover amount. The smart and easy way would be to go to an online platform to view the best deals on offer with a click of a button.