What is the Right Amount of Term Insurance Coverage for You?

Term insurance is a must for every household. In the event of the policyholder’s death, it can save his/her family from spiralling into a financial crisis by replacing income, paying off debts, and covering daily expenses. However, while buying a term insurance policy, you must ask yourself some essential questions—‘How much term insurance coverage do I need? Will it be enough to secure my family’s future?’

These questions are crucial in securing your financial future. The ideal coverage should provide financial security for your loved ones and cover all major expenses and liabilities in your absence.

Determining the Appropriate Amount of Term Insurance Coverage

The right amount of term insurance coverage depends on your financial obligations, future goals, and family needs. Here’s a comprehensive breakdown:

• Assess Your Monthly Expenses: Start by evaluating your monthly living expenses, including bills, groceries, and other essential costs. This will help you determine the basic coverage needed to sustain your family’s lifestyle in your absence.
• Consider Your Financial Liabilities: Factor in any outstanding debts, such as home loans, car loans, and credit card balances. Your term insurance should be sufficient to cover these liabilities, ensuring that your family is not burdened financially.
• Take Your Future Goals into Account: Consider long-term financial goals, such as children’s education, marriage expenses, and retirement plans. These goals require substantial funding, and your insurance coverage should adequately support them.
• Think About All the Big Things You Want to Afford: Beyond basic expenses and liabilities, think about the big-ticket items you want your family to afford, such as travel, a comfortable lifestyle, or pursuing passions.
• Your Spouse's Living Expenses: If your spouse is dependent on your income, include their living expenses in your calculations. This ensures they can maintain their standard of living without financial strain.

How Term Insurance Coverage Functions

Term insurance in India operates as a pure risk protection plan. It provides coverage for a specified term, and in the event of the policyholder's untimely demise, the nominee receives the sum assured. This type of insurance does not offer maturity benefits, making it an affordable option for securing significant coverage.

In short, a term insurance is the best option to secure your family’s future, safeguarding it from any financial crisis that may arise out of your unfortunate death.

How to Calculate the Right Amount of Term Insurance Coverage

Determining the right amount of term insurance can be approached using several methods:

• Human Life Value (HLV): This method calculates your ‘human life value’, which, in simple words, means your monetary worth to your family. You can determine your monetary worth based on your income, age, monthly expenses, total debts, the number of years you want to continue working, and other obligations. Here’s a simple example: if your annual income is ₹10 lakh and you, want to continue working for another 30 years, your HLV is ₹3 crore. Subtract your loans and other liabilities and you will get a rough estimate of your Human Life Value, which can be used to determine your term insurance coverage amount.
• Income Replacement: This approach estimates the amount required to replace the policyholder’s income for a specific number of years. For example, if you are a parent to a three-year-old and you want your insurance money to cover your family till your child starts earning, you are looking at a policy term of at least 20 years. Calculate the money you would require to replace your income for the next 20 years.   
• Expense Replacement: This method covers future expenses, including daily living costs, education, and other financial commitments.
• Underwriter’s Rule: This simple method suggests coverage amounting to 10-15 times the annual income, providing a straightforward calculation method.
• Online tools: These tools can help you calculate your term life insurance cover. Here’s our term insurance calculator to get you started.

Important Factors to Consider Before Choosing Term Life Insurance Cover

Before finalising your term life insurance coverage, consider these factors:

• Consider Your Budget: Ensure the premium fits your budget without compromising other financial commitments.
• Consider Riders: For comprehensive protection, enhance your policy with additional riders, such as critical illness or accidental death.
• Buy Term Insurance Plan Online: Buying term insurance online can offer convenience and potential discounts. Compare different plans and choose the best option that meets your needs.
• Regular Income: Consider the stability and future prospects of your income when selecting your coverage amount.
• Life Goals: Align your coverage with long-term life goals to ensure complete financial security for your family.

Wrapping it up

Choosing the right amount of term insurance coverage is essential for financial security and peace of mind. By thoroughly assessing your financial situation, future goals, and liabilities, you can determine the ideal coverage that provides adequate protection. Remember, the right policy not only safeguards your family’s future but also offers you the assurance that they are well-protected. With Bandhan Life’s iTerm Prime, you will get your desired life cover at affordable premium rates and flexible payment plans. Check it out now.   

FAQs

1. How much term insurance should I take?

The amount depends on your financial obligations, income, and future goals. A general thumb-rule is 10-15 times your annual income, however, it should be tailored to your specific needs.

2. What is excluded under term insurance cover?

Term insurance typically does not cover death due to self-inflicted injuries, participation in hazardous activities, or under the influence of substances.

3. How much insurance does a 35-year-old need?

A 35-year-old should consider coverage based on their income, financial responsibilities, and future plans, typically 10-20 times their annual income. To get a more accurate estimate, try our calculator.