How Much Term Insurance Cover Should One Buy?

Life can be very unpredictable, and you can never know when it may throw a curveball at you. But you have to be ready for it. Therefore, a good part of your financial planning must go towards setting up a rock solid contingency plan so that you and your family have a cushion to fall on when something unexpected happens.One such plan is a term insurance plan , wherein an insurer provides a lump sum amount known as the death benefit to your family in case you pass away. For a term insurance to stay active you’re required to pay your regular premiums to the insurer. So, the question always comes up, how much term insurance to buy? One must understand that this amount is important because it must be sufficient for your family’s future in your absence.In broad terms, experts say that a term insurance cover should be about 15 to 20 times your annual income. So if your annual income is Rs. 5 lakh, your term insurance cover should be between Rs. 75 lakh to Rs. 1 crore. But there are other factors that you must consider when zeroing in on your term cover amount. Let us take a closer look at them.

Your Age:

Your age plays an important role in deciding your term insurance cover. If you’re young and have lesser liabilities, then you may not require a high term cover. As you grow older, your liabilities start growing, more people depending on your finances, and that is when a higher term cover will be most useful for your family.Another way age can factor in your term cover is that the younger you are, the lesser will be the term insurance premium. You can get excellent coverage for economical premiums if you buy term insurance at a young age.

Your family’s standard of living

Your goal with term insurance must be to ensure that your family can continue living with the same lifestyle in your absence just as they do now. So your term insurance cover should be an amount that sufficiently covers all your family’s costs. Calculate your monthly expenditure and let the calculated amount be a guide when you decide on your term cover.

Children’s Education

Your children’s education will be one of the major expenses that your family will have to incur. With the cost of education going through the roof, you must take it into consideration when calculating your term plan cover. Make sure that your term plan has enough cover so that your children can get the best education available.

Loans

You must factor in the loans that you have taken when calculating your term cover. The responsibility of reimbursing home loans, car loans and other such loans can be a burden on your family if you’re not there. So your term insurance cover must be enough to repay the EMIs of all your active loans.

Assets

When calculating your term insurance cover, you can also take into account the assets that you own. This will let you see the comparison between your liabilities and your assetsand help you make an informed decision.

Riders

Riders are nothing but additional benefits that insurers offer when you buy term insurance for a slightly higher premium. For example, a waiver of premium rider means that if the policyholder gets critically injured or ill (or anything else specified in the policy), all future premium payments will be waived off.Another rider is the accidental death rider, which promises additional coverage if death of the policy holder occurs due to an accident. So when deciding your cover, you should look at the available riders that can increase your coverage amount.

Children’s Wedding

Just like education, your children’s wedding would also be a major expense when they come of age. Your term insurance cover must be sufficient enough to cover expenses related to your child’s marriage.

Thus, your term insurance cover is never an arbitrary number that you can choose without due consideration. All the above factors must be kept in mind so that your term insurance can be used successfully when it matters the most, to serve your family in your absence. Also Read: What is Term Insurance?

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.