Introduction
The fundamental intention for investing in a term insurance policy is the family’s financial security in your absence. Have you put in effort to assess the coverage needed for your family to live a comfortable life without compromising their existing lifestyle? With the various angles for consideration explained in this article, you will be able to buy term insurance that will serve the purpose without burning a hole in your pocket.
Factors To Be Considered Before Deciding The Sum Assured
The basic step before buying a term plan is to calculate the sum assured. Many of them randomly buy a term plan for ₹1 crore. This amount is significantly huge for your family’s financial security when the unexpected happens. The premium rates may be unreachable for some and yet they take the step. The prudence in investment lies in the assessment. Here are some factors that need to be considered before deciding the sum assured for a term plan.
Income
The first deciding factor is your income. The thumb rule is the sum assured should be 10 to 15 times your annual income. For instance, if your annual income is ₹ 8 lakhs, the sum assured should be between ₹ 80.00 lakhs to ₹ 1.20 crores. This will take care of the expenses of your family despite growing inflation and maintaining the existing lifestyle.
Financial Goals
You need to save significantly for financial goals like your child’s education, marriage, etc. Your financial goals are a critical aspect in deciding the extent of coverage you require. In case of any uncertainty, your family should not give up on these goals. Your term plan cover should serve the purpose of providing them with ample financial security to maintain the present standard of living.
Existing Liabilities
The cover you need largely depends on your existing liabilities. Loans like home loans, business loans, personal loans, credit card bills, etc have to be considered while arriving at the sum assured. In case of your unexpected demise, the burden of the EMIs will fall on your family. They will find it difficult to sustain the household expenses and the EMIs and might have to compromise on their standard of living. With adequate insurance coverage, they will be able to meet all these expenses without compromising their standard of living.
Life Stages
The insurance coverage and tenure to a great extent depend on the life stage you are in. You are not burdened with liabilities when you are single. The scenario changes when you get married. You will incur liabilities to fulfill new financial goals. Similarly, when you become a parent, your child’s future will be an added goal that needs significant investment. You should keep reviewing your financial needs at every stage and modify the coverage accordingly.
Sum Up Your Networth
Your family can readily access your existing investments like fixed deposits, mutual funds, etc. If you are eligible for PF and gratuity, they are readily available too. You can deduct these while calculating the sum assured while buying a term plan.
Choosing the Right Coverage
You will be able to make an informed decision after considering all the factors mentioned above. However. choosing the right coverage with a premium rate that fits your budget is another critical requirement. If the premium rate is beyond your reach, you may end up missing premium payments which is not desirable. Here are some tips for you to choose the right coverage.
Use Term Insurance Calculator
The sum assured and the period of the policy are considered to calculate the premium rates. The rates also vary with the premium payment mode and periodicity chosen. You can use a term plan calculator to check how. the premium rates vary with the factors. With trial and error, you will be able to choose the right term insurance policy with a premium that is well within your budget.
Buy The Term Plan Online
Buying a term insurance policy online is a convenient way. You can eliminate the need to visit the office of the insurer or look for an insurance agent. Besides this, there are other advantages too. You will be able to compare the premium rates of different insurance companies and the turnaround time for issuing the policy. You can also check the claim settlement ratios.
Investment in a term plan that does not serve the purpose is of no use. Consider all the factors and adopt the tips to make an informed and prudent decision.
Conclusion
A term plan plays a critical role in securing your family financially. An impulsive decision without application of mind while buying an insurance plan can affect the life of the beneficiary. A financial crisis when your family is dealing with the emotional void can be challenging. Consider the factors mentioned in this article before buying a term plan. An informed decision can save your family from financial calamities when you are not around.
