Is Your Term Insurance Plan Sufficient To Protect Your Family?

You must check if the term insurance plan has sufficient cover to safeguard dependents. If not, make sure to increase sum assured in term life insurance plans.

Inflation especially medical inflation is on the rise. It means a rupee today is worth more than a rupee tomorrow. Let’s put this in numbers.

When Mr Kiran was single 5 years ago, he had a term life insurance policy with a sum assured of Rs 20 Lakhs. Now, he is married and has two children and believes this sum assured is not sufficient to meet the financial goals of his dependents, including parents. Mr Kiran badly needs to avail a new term life plan or increase cover under the old term life plan. (He basically needs to increase sum assured under the term life insurance plan).

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See Also:  Why Buy Term Insurance for Your Family?

Is Your Term Insurance Plan Sufficient To Protect Your Family?​

How Large Should Cover Be?

The following chart illustrates the sum assured for Mr Ravi who is 35 years old.

		Mr Ravi	Yours (fill the gaps)
A	Age	35 years
B	Dependent members	3
C	Yearly income	Rs 10 Lakh
D	Household expenses	Rs 5 Lakh
E	Number of working years left (60 years – the current age of 35 years)	25 years
F	Funds necessary to manage household overheads = E X D = 25 X 5 = 125 lakh	Rs 125 Lakh
	Outstanding loans to be added if any
G	Home loan	Rs 30 Lakh
H	Car loan	Rs 5 Lakh
I	Funds required to repay the debts (G+H)	Rs 35 Lakh
	Additional funds required for the family
J	Children’s education	Rs 10 Lakh
K	Children’s marriage	Rs 15 Lakh
L	Contingency funds	Rs 8 Lakh
M	Total (J+K+L)	Rs 33 Lakh
N	Deduct the value of existing assets (assumed)	Rs 30 Lakh
O	Total insurance cover required (F+I+M-O)	Rs 163 Lakh

This is a simple calculation. Use the same procedure to compute the sum assured you require on your term insurance policy.

Human Life Value (HLV):

The concept of human life value is very simple. It helps calculate life insurance needs. Put simply, the future earnings are expressed at the current price.  The desired sum assured can be computed using the Human Life Value calculator (HLV calculator). IndianMoney.com, a free financial education company, offers this customer-friendly HLV calculator.

Age vs Term Insurance Cover

If you are below 40, the sum assured must be at least 20 times yearly income. During the 40s, it should be 10-15 times yearly income; and during the 50s, the cover must be 5-10 times yearly income.

 Retirement Planning for Spouse

The calculations have to be modified a bit if your spouse is not working. Estimate funds she may require after the age of 60, pay attention to medical expenses, living expenses and so on. In this way, you can provide complete financial protection to the spouse. The calculations differ across families as preferences/needs are different.

See Also:  How Much Term Insurance Should I Buy?

Key Features of Term Insurance

• Tax savings under Section 80C
• Death benefits
• Riders to be used wherever required
• Family protection plan
• Cost-effective insurance policy

Did You Know?

You must avail term life insurance with your first salary because of the following reasons:

• Tax Benefits
• Big cover at affordable premiums
• Meets family financial goals in absence of breadwinner.

See Also:  How to Secure Your Family With Term Insurance?

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