Categorized | Term Insurance

What Should be The Minimum Term Insurance Coverage For You?

One of the stray objectives behind any life insurance plan is to prepare for your death. Don’t worry, this article is not about some occult rituals but highlights the financial implications arising from a sudden death of an earning member of a family. No matter how much we avoid thinking about death but it still is the universal truth, the surest thing that will happen to you. It is also called ‘the ultimate fate’ and when you will meet it, no one knows.

To explain my point deeper I am going a little tangent from my main topic. We often take death as a distant thing and do not feel the urgency to plan for it. If you meet any ardent spiritualist preferably a sannyasi, you will know how people plan about their death. These people live their lives being always conscious about the impermanence of life. They plan their responsibilities in such a way that they can meet death anytime without worries.

For us householders, the responsibilities are greater as we have dependents upon us. If we have raised a family we are highly responsible for its well being. Even death is no excuse to shrug off our responsibility. Knowing that we can die anytime, we should plan for the security of our family’s future and arrange for their comfortable sustenance in our absence. To help us fulfill these responsibilities we have life insurance plans.

Life insurance plans, specifically a Term Plan, is designed to secure the future of the nominee/nominees of the Policyholder against the financial hazards arising from the death of the latter during the currency of the policy. The Coverage should be enough to replace your current annual income so that they need to compromise on their standard of living.

People often ask their insurance advisors about the minimum coverage they should have in their term insurance plan. Well, this question can be answered by evaluating various factors. Some of them are discussed below.

1.Life Stage

Your responsibilities depend to a great extent on the life stage you are at. If you are single then your responsibilities are very minimal specially when your parents are earning and well off. After marriage you start getting the taste of responsibilities. After having children you shoulder huge responsibilities and they keep increasing thereafter till you retire and your children assume the role of bread winners. Based on the load of responsibilities on your shoulders you decide the life cover.

2.Your Other Assets

If you have other assets such as real estate, healthy bank balance, stocks etc which can be enough to sustain your family without affecting their standard of living much, then you don’t need to invest heavily in life insurance plans. Thus, your financial soundness plays a key role in deciding the sum Assured for you.

3.Your Outstanding Loans and Liabilities 

Y  our death would already be a huge emotional loss for them and therefore you certainly don’t want to add to their miseries by burying them under your outstanding loans and liabilities. To keep their dignity intact your life cover should be strong enough to pay all your outstanding payables and still leave enough for your family to live comfortably.

4. Inflation

The prices of services and commodities are not going to be same as the prevailing prices and term plans are generally bought for long term considerations. Thus, you should keep the factor of Inflation in mind while deciding the life cover. The proceeds from the insurance company should be good enough to be of some significant help to your family.

As per the industry rule you cannot get a Sum Assured of more than 20 times than your annual income at the time of purchasing the term plan. This ‘20 times’ bracket keeps on shrinking with age and health condition. Thus, the sooner you buy such plan the more is your eligibility up to which you can get life cover.

Underinsurance is a very common term in life insurance sector. If your life insurance proceeds are not enough for your family to sustain then the whole purpose of investing in such plan gets defeated. Thus, considering the above points and getting due consultation from your trusted life insurance advisor decide the minimum Term Insurance coverage for you.

Don’t shrug off from responsibilities rather fulfill them religiously and set a good example for your descendents to folliow!!