How to choose the sum assured while buying term life insurance?
Term life insurance policy is known for offering high insurance coverage amount in considerable low premiums. This is among the primary reason why people opt for term plans. Generally, it has been observed that Rs 1 crore seems enough and quite large for policy seekers in India to take care of their financial expenses.
For them, most likely, the eight-digit insurance coverage amount appears adequate to support their family’s needs and prerequisites in case anything happens to them. This is the point at which they don’t understand the basic logic behind how to select the sum assured at the time of buying a term life insurance. As when you evaluate on papers, it seems to be perfect, but while implementing, things change. Therefore, it is essential to know the right way to assess the sum assured amount.
One-time expense plays a crucial role
While calculating the sum assured amount, people often ignore considering the outstanding debts, the increasing inflation and significant expenses like children’s higher education, marriage, and post-retirement funds. Ideally, the coverage amount should be 20 times of the annual income for each salaried individual up to the age of 40 years. People over the age of 40 years should opt for insurance coverage that is 10 to 20 times of the yearly salary while people in their 50s must choose coverage of 5 to 10 times of their annual pay.
So aside from the yearly pay, your family’s yearly costs should be considered to ascertain the correct sum assured amount of your term life insurance policy. A one-size-fits-all methodology can’t be followed while buying a term life insurance, and it is suggested to make a careful examination of individual costs, investments, liabilities, and requirements at the time of buying a term life insurance.
Managing the needs of your spouse
While searching for a comprehensive term life insurance policy, do make a point to pick a policy that covers the needs of your life partner’s future. The chosen insurance policy must be well prepared to secure your spouse’s old-age necessities such that he or she can carry on with a comfortable life in your absence.
Therefore, the significant components that you need to consider while calculating the insurance sum assured are the medical expenses, lifestyle expenses and other requirements. At the same time, Rs 1 crore life cover is adequate if the spouse is only dependent, but if individuals who likewise have at least two kids as dependents, then higher insurance coverage is required.
Consider the Inflation Rate
While ascertaining your family’s future expenses and costs, you should always remember the inflation rate. Most likely, the necessities and prerequisites of your family will continue to rise with time. Supposedly, if your family’s complete costs are Rs 50,000, they will undoubtedly get increased to 70,000 every month in the following five years with an inflation rate of 7 percent for each annum. This is one of the most significant reasons why you should consider the overall insurance coverage amount when you are buying a term life insurance plan.
It is always recommended to review the insurance cover at regular intervals and during certain critical moments in life, such as at the time of marriage, purchasing another home or at the time of birth of a child. To support these scenarios, there is increasing term life insurance which grows at a certain percentage every year and takes care of the growing needs as well as the inflation rate. For the initial five years, the death benefit amount stays at a similar level, post fulfilment of five years the insurance coverage begins expanding by 5 or 10 percent for the following 15 years or end of the strategy term, whichever is prior.
As buying a term life insurance is necessary, opting the right sum assured is equally essential. Because in your absence, the life coverage amount will take care of your loved ones financially, managing their daily expenses, their dreams, and outstanding liabilities. Hence, while evaluating the correct sum assured that you need, do keep in mind the above pointers. If you need any insurance guidance, then visit BimaKaro.in today and get free quotes or speak to their insurance experts. Make a wise decision today to enjoy a peaceful future.