All insurance products offer a cover and term insurance is no different. What is term insurance? In simple terms, term insurance is a simple form of life insurance and is gaining demand among people in India. It offers coverage for a definite period. For example, if you buy a term insurance policy for a sum assured of Rs. 20 lakh, your nominee will receive the policy benefit if you expire before the maturity date of the policy. You get nothing if you outlive the policy term. It means term insurance does not have maturity value. In general, term insurance is considered to be a pure risk protection policy. It is because the premium you pay is used only to cover the risk of a policyholder.
How big should my term insurance cover be? Is it 10 lakh, 20 lakh, 30 lakh or 1 crore? It all depends on your needs. Remember that term insurance is usually bought to provide full financial protection to your dependents, which could be your spouse, children, parents and siblings. The cover you choose must be sufficient enough so that your dependent members can lead a financially secured life even though you are not around them. Here is an example of Harish, who is a software engineer from Bangalore. 6 years ago, he had availed a term insurance policy for a sum assured of Rs.25 lakh. He cannot retain the same sum assured even after 6 years. This is because the cost of living will increase year after year.
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In India, experts recommend that a sum assured for a term insurance policy has to be at least 15-20 times of your yearly income. According to this thumb rule, it must be Rs. 45 (15 times) lakh if your yearly income is Rs. 3 lakh. The outstanding loans should be added if any. If you have a four-wheeler loan of Rs. 6 lakh and a home loan of Rs. 15 lakh, the term insurance should be Rs. 66 lakh (45 lakh + 21 lakh). Moreover, the impact of inflation should also be accounted for.
Step 1: Estimate your current expenses, including insurance premiums, household bills, utility bills, miscellaneous overheads, tuition fees, etc. These are the minimum overheads that have to be taken care of.
Step 2: Estimate your current liabilities, including your house loan, personal loan, car loan or education loan if any.
Step 3: Do not forget to consider the potential overheads of significant milestones in your life. For example, you may spare some amount for your children’s marriage or education.
Age has an important role to pay when it comes to term insurance. Let’s now consider what experts have to say about age and the cover on term insurance. If you are in the age group of 25-35 years, the cover must be at least 18 times of your yearly income plus the outstanding loans. If you are in the age group of 25-45 years, it has to be at least 15 times the current yearly income plus the outstanding loans. On the other hand, the cover must be at least 10 times the present annual income if you are in the age group of 45-55 years.
See Also: Benefits of Buying Term Insurance Online
Human Life Value calculator is a tool that will help you the estimate the financial responsibilities your family members will face when you are not around. In other words, HLV calculator assists people to recognize the health insurance requirements of your family based on your current income, investments and liabilities. It is easy to use and available online. It may also be found on the official website of IndianMoney.com. Many people have used it and found it useful.
See Also: How to Buy LIC Tech-Term Insurance Plan?
The prime feature of term insurance is that they are cheaper as compared to other life insurance policies. In today’s market, customers can get a cover up to Rs.1 crore if they are ready to pay a yearly premium of over Rs.10,000. It can be bought online and offline. When you buy online, premiums will be lower for a higher sum assured since there is no paperwork. As far as premium payments are concerned, they are very flexible so that you can choose the most appropriate payment option according to your convenience and choice. It also provides tax benefits u/s 80C of the Income Tax, Act, 1961 to policyholders.
Term insurance is huge in scope. It is offered with several riders for the benefit of people. They consist of critical illness rider, waiver of premium rider, accelerated sum assured rider, accidental death and disbursement rider and, permanent and partial disability rider. Each rider is meant for a specific purpose. For example, dependent family members get additional income in addition to the regular policy benefit when you choose income benefit rider.
See Also: Why You Need A Term Insurance Plan?
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