A term insurance policy could provide much-needed support to the insured’s family members in the event of his death. It’s beneficial to choose a term insurance plan with the best possible cover and low premium.
A term insurance policy is one of the most affordable variants of life insurance that offers cover to the insured’s family in the unfortunate event of the policyholder’s death. The insured needs to pay a fixed premium for this policy just like other policies and if they die within the term of the policy then the promised amount would be transferred to the nominee(s). This amount aids in reducing financial stress on family members and helps them to maintain their quality of life. Choosing the ideal size of the term insurance plan could be a bit tricky but we’ve got you covered.
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What should be the size of term insurance of a salaried person?
When you are opting for a term insurance policy, it’s extremely important to think about a few factors that revolve around your financial responsibilities. You should consider one-time expenses, like your child’s education expenditure or their wedding costs. Consider any loans that you have availed for your home, car, or other personal expenses. Moreover, it’s essential to plan for your spouse’s retirement, handling medical emergencies, and covering your day-to-day expenses. As a rule of thumb, it’s a good idea to aim for term insurance coverage that’s about 10 to 15 times your yearly income.
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To understand better, let’s consider the example of Mr. Kumar. He earns an annual salary of Rs 8 lakh and has a monthly expenditure of Rs 20,000, which equates to Rs 2.4 lakhs on an annual basis. Moreover, he has an outstanding loan of Rs. 25 lakh. Taking into account an estimated inflation rate of 8 percent, his expenses over the next 20 years would be around Rs 96 lakhs, and he would also have to pay for a loan of Rs 25 lakhs. The total of these expenses come to Rs. 1.21 crore. In this scenario, an ideal term insurance coverage for Mr. Kumar would be Rs 1.21 crore, which is approximately 15 times his annual income.
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Also, it is recommended to start investing in a term insurance plan at an early age as delaying it could result in paying high premiums over time. Look for term insurance policies that provide the best cover at the lowest possible premium so your current financial burden doesn’t increase.
