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Home Articles How Much Term Insurance Should I Buy?

How Much Term Insurance Should I Buy?

IndianMoney.com Research Team | Updated On Monday, June 03,2019, 05:53 PM

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How Much Term Insurance Should I Buy?

 

 

What is term insurance? Term insurance is a type of life insurance, which offers coverage for a fixed time period. Term insurance plans are not as expensive as endowment life insurance plans and have no cash value. These are pure risk plans with no survival benefits.

The entire premium you pay goes towards risk cover (mortality cover). If the policyholder dies within the tenure of the plan, the nominees get the death benefits. If you have availed a term insurance policy, do you think it’s adequate? What should be the sum assured? Let’s discuss in detail.

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How Much Term Insurance Should I buy?

Things to Consider When Computing the Cover You Need

  1. Age Matters: A young person is assumed to be healthier than an older person. If you are in your late 20s and early 30s, the probability of falling sick is lower than a guy in his 40’s. As you grow older, you need more cover than when you were young.
  2. People have different income levels irrespective of age. A young person may earn more than an older person and therefore, he or she may need a higher cover.
  3. Financial institutions recommend buying a health or term insurance plan, when you take a loan like personal loan, home loan or a car loan. This ensures you’re covered and your family gets the death benefit (in case of term life plan), on an unexpected demise. The death benefit can be used to pay off the loans.
  4. Insurers are offering special riders to make their policies attractive. Riders are of great help in case of specific needs, but come at an extra cost. Avail only those riders you really need. Skip the unnecessary riders and save on premiums.

See Also: What is a Term Insurance Plan?

Quantum of Term Insurance:

Financial experts recommend that you have term insurance cover which is 15-20 times of your net annual income. A person with a yearly income of Rs 6 Lakh must have cover of at least Rs 90 Lakh (15 times), if there are no additional burdens (additional liabilities). If he/she has a car loan of Rs 4 Lakh, an ideal term insurance cover would be Rs 94 Lakh (90 Lakh plus 4 Lakh). In case of death within the term of the plan, the insurance cover must replace the potential earnings the policyholder would have earned. The following table tells you how much must be the minimum and maximum cover:

Age Group

Minimum multiple

Maximum multiple

50-60

5

10

40-50

10

15

30-40

15

20

There is no restriction on the number of term insurance policies you may avail. Make sure you have the necessary sum assured (you are adequately insured). It is advisable to have either one or two policies with a higher coverage. The term varies, depending on the insurer. The policy term is between 5 to 40 years in India and moreover, there are a few term insurance plans that provide coverage until you attain the age of 99.

Benefits of Term Insurance:

  • Term insurance plans offer financial security to your family in case of death or permanent disabilities.
  • You get sufficient coverage at a lower premium.
  • The term is flexible in nature and can be easily extended. Let’s say you have taken a policy for one year, the term can be extended for another year, if you pay the required premium amount.
  • Premium payment options are customer-friendly just like other life insurance plans. The premiums are low when you avail an offline term insurance plan.
  • Under Section 80C of the Indian Income Tax Act, 1961, a policyholder is entitled to get tax benefits on term life insurance plans up to Rs 1.5 Lakhs a year.
  • Under Section 10(10D) of the Act, the death benefits got by a nominee on death of the policyholder in term life insurance are tax free.

See Also: Best Term Insurance Plans In India

Categories of Term Insurance Plans

  • Joint term insurance plans
  • Online term insurance plans
  • Regular term insurance plans
  • Term return of Premium
  • Group term insurance plans
  • Decreasing and increasing term plans
  • Regular term insurance plans
  • Convertible term insurance plans

Final Word

You must be sufficiently insured, with a term life insurance plan. According to a recent survey, 80% of the Indians residing in urban areas have very low insurance cover. If you’re one of them, choose a plan wisely considering the tips mentioned in this article.

See Also: Tips before Buying Online Term Insurance Plan

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IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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