Understanding the importance of financial planning and providing your family with a safety net in your absence is non-negotiable. However, knowing how much insurance coverage you require is not a one-off quick decision. It requires prior planning and thorough research.
Among the multiple term insurance plans available for you, knowing which one fits your requirements is possible only when you know what you want. You can calculate the premiums for various available plans by using a term insurance calculator. However, you cannot put a cover range for your term insurance plan without knowing what you require and why.
Term Insurance Coverage Explained
Simply put, term insurance coverage is the amount a policyholder’s family receives if the insured dies within the specific policy tenure. Based on the term insurance plan and the additional riders, the sum amount given to the family members can include other covers like disability cover, accidental death cover, terminal illness cover, etc.
The primary purpose of term insurance coverage is to provide financial assistance to the policyholder’s family members. So, ideally, the cover should be a minimum of 12-15 times the policyholder’s annual income. In addition, factors like inflation, cost of education, medical expenses, etc., should all be taken into consideration.
Rohit is 30-year-old, with an annual income of ₹15 lakhs. He has three children aged 8 to 15 and lives with his parents and wife in a house on loan. To calculate his term insurance coverage, he can take up a lump sum amount of 20 times his annual salary, coming up to ₹3 crores. This is based on visible factors like a home loan on his current house, education costs for his three children, and other financial expenses that can arise after his untimely demise.
To understand this division better, let us look at factors that can help calculate your term insurance coverage.
Factors to Calculate Your Term Insurance Coverage
- Take note of your annual income, as that gives you a clear idea about how much you can spend on a term insurance plan premium.
- Dig deeper into your monthly expenses and consider different types of expenses, including grocery, water and electricity bills, rent or loan amount, vehicle expenses, recreational expenses, etc.
- Create a list of liabilities against your name, including the loans for your home, car, and other pending EMIs. This will help plan the lump sum cover amount required by your family to cover these costs in your absence.
- Noting down your goals for the future, including retirement plans, plans for higher education for children, hobbies, property purchases, etc., also helps calculate the final term insurance coverage you should opt for to support your family.
- Your age is also an important deciding factor as depending on the age group you belong to while purchasing the term insurance plan, the cover range will differ.
Knowing how much term insurance coverage you require to support your and your family’s financial goals can help you make the right decision. You can use a term insurance calculator online to know your options before deciding.
Moreover, knowing your expenses and other factors mentioned above before choosing the term insurance coverage will further assist you in better financial management. No one knows your lifestyle better than you do, so invest wisely and choose a term insurance plan that best supports your goals.