Imagine sipping warm chai with your spouse on the terrace in the evening, discussing how both of you could use the money to buy a dream home in the near future. You also think of planning a tour for your family in the next year and getting your kids enrolled in the best colleges in the country. Now, think of an alternate scenario. What if you are not around tomorrow? How will your spouse be able to manage all that you two had planned? How will she or he be able to manage the monthly grocery and school fees and the house loan EMI? This is where term insurance comes to your rescue. It is a true lifesaver that is not only a box-ticking exercise. It is a genuine promise that ensures your family leads a life of comfort and peace of mind even in the cruellest times. However, when you sit down in front of the insurance agent, the most common query that haunts you is, “What amount do you need to protect your family from a financial standpoint?” Should you go for the meagre cover or invest a bit more and get a 1.5 crore term insurance plan? Read on to know all about term life insurance that will benefit you and your family in all Indian cities and towns.
What Is Term Insurance, and How Does It Work?
Think of term insurance as an umbrella that you carry to avoid getting drenched in case of sudden heavy downpours. Similarly, you provide a safety cover to your family in the form of paying a small premium to the insurance company, which, in turn, pays a large sum of money to your nominee in cases of mishaps occurring during the policy tenure. If you survive the policy term, you don’t get any returns but have full peace of mind. The aim and purpose of a term life plan are not to make you rich or to help you invest in the stock market. Instead, its sole objective is to offer complete financial protection to your near and dear ones who depend on your monthly salary to lead a decent life.
Why the Standard Coverage Amount Might Not Be Sufficient Anymore
A decade ago, a twenty- or thirty-lakh cover seemed a god-given amount to the average Indian household. However, not only have times changed in Indian cities and towns, but inflation has also skyrocketed in recent years.
Inflation and Rising Prices
The prices of essential items such as milk, groceries, petrol, domestic help, and medical facilities have gone up manifold in the past few years. This means that what seems a big amount to you now will seem absolutely minuscule after fifteen or twenty years.
Loan EMIs
Young professionals in India today are highly dependent on loans and credit facilities to build and lead their lives. From a long-term home loan for a flat to a personal loan or a car loan, everyone has at least one standing liability. In case of unfortunate events, the banks will require the monthly EMIs to be cleared by your nominee or legal heir.
Big Future Expenses
Higher studies, wedding expenses, and medical bills in old age are some of the biggest expenses that the average Indian family thinks of. Therefore, given the abovementioned reasons, the standard life cover is insufficient, and an upgraded plan, such as a 1.5 crore term insurancepolicy, is of paramount importance.
Comparing Basic Coverage with a 1.5 Crore Term Insurance Plan
Depending upon your life stage, financial obligations, and responsibilities, a basic term cover will be totally insufficient for your family in the long run.
A basic life cover applies to single young men and women in their late twenties or early thirties with no dependents or significant liabilities. It is enough to clear minor and personal loans standing in your name. However, it won’t be of much help to your spouse and children in the long run.
On the contrary, a 1.5 crore term insurance plan is perfect for a family man with multiple financial obligations and a sizeable family to depend on him. The 1.5 crore cover will act as a financial umbrella that is sufficient to clear all your large standing liabilities, such as the home loan, and leave behind a considerable amount to invest in monthly household expenses, children’s education fees, or a college-going fund.
How to Calculate Your Required Coverage Amount?
Calculating the required life cover is not that difficult once you understand the simple calculations. Experts recommend a thumb rule that is simple to follow and can be followed by all Indian families at home:
Your Ideal Life Cover = (Your Current Yearly Income x 10 to 15) + Total Outstanding Loans Left to Pay.
Let’s take the example of Rahul, who is a software professional, thirty-two years of age, and lives in a metro city. He earns ten lakh rupees per year and has a wife, a toddler, and retired parents to look after. In addition, he has an outstanding home loan of thirty lakh rupees.
Using the formula mentioned above for Rahul’s life cover, we first multiply Rahul’s yearly income of ten lakh rupees by twelve to get 1.2 crore rupees as the base amount. We then add his outstanding loan of thirty lakh rupees to this amount to get 1.5 crore rupees as his ideal life cover.
For a family man like Rahul, a 1.5 crore term life insurance plan will ensure that, in case of any mishap, his home loan is cleared immediately while leaving behind a lump sum amount to maintain his family’s standard of living.
Key Factors That Influence Your Term Insurance Premiums
Various factors are taken into account by the insurance company to calculate your premium amount.
Your Age
The younger you are, the lower the chances of any health issue, and therefore the lower your premium amount will be. In your twenties or early thirties, you can get a lock-in of a low premium amount for your entire policy tenure.
Health and Lifestyle
Smokers and people with pre-existing medical conditions will have to pay a slightly higher premium amount. This is because the chances of making a claim are higher in such cases.
Policy Tenure and Payment Mode
Getting a cover that extends till your retirement age of sixty or sixty-five years is always a good option. This way, you don’t have to pay any extra premium to increase your cover.
Common Mistakes to Avoid When Buying Life Cover
There are several thumb rules to avoid when buying a term life insurance plan.
Group Life Insurance Cover
Though many people in India buy corporate life insurance cover as a fringe benefit, such cover is dependent on your employment with the company. As soon as you quit, change, or get laid off from your job, the cover will terminate. An independent term life insurance plan is always a better option.
Buying Term Life Insurance in Your Late Thirties or Forties
It is a common practice to defer buying a life insurance plan to your late thirties or forties. However, this is a major mistake, as you will have to pay a substantially higher premium amount per year.
Concealing Medical History Details
Always disclose your health history honestly, without any omissions or misinterpretations. This will help your nominee claim the amount smoothly and without any hassle.
Taking Action to Secure Your Family’s Future Today
Ultimately, term life insurance is about love and care for your family rather than about mere finances. Thinking about your family’s future and taking stock of their current monthly expenses and future wishes and dreams will help you decide on an adequate life cover. Put your family’s future on a solid and reliable financial path by buying a good term life plan.
