Devendra had purchased a term insurance plan worth Rs 50 lakh when he started a job. But over the years, he settled down, got married, and now has two children. Now he felt that the life cover would not be sufficient for the financial requirements of his family, in the case of any unfortunate eventuality. This was because his expenses had increased manifold. Besides, with the increase in his salary, his financial goals had also widened. Devendra then decided to select a term insurance plan, with a life cover of more than Rs 1 crore to take care of his financial goals. This plan would also provide adequate sustenance to his family, if he was not around.
How much cover should an individual ideally opt for?
According to experts, earning individuals must purchase a term insurance plan on the basis of their earning capacities. While individuals up to 40 years of age should purchase a term insurance plan of around 20 times of their annual income, those in their 50s can opt for a term insurance plan, which is at least 10 times of their annual income. Experts say that this term insurance plan should continue till the individual’s retirement age. Generally speaking, any individual should purchase a term insurance cover that ranges between 10 and 20 times of the annual income. For instance, an individual with Rs 8 lakh could ideally avail of life cover of Rs 8,00,000 x 20 = Rs 1.60 crore
How to calculate correct term insurance coverage amount?
An individual can calculate the total income earned during the active working life using a Human Life Value (HLV) calculator. This works on the formula that life cover is the sum total of a family’s living expenses plus life goal expenses plus outstanding debts minus current total term insurance cover along with savings or money in hand. In most cases, an HLV calculator reveals that one requires a life cover of more than Rs 1 crore.
How to calculate a family’s living expenses?
An individual can calculate the family’s living expenses by considering the annual living expenses and multiplying it with a defined number of years. The defined number of years can be calculated by subtracting the general retirement age of 60 from the present age. For example, if an individual aged 40 has annual family expenses of Rs 3 lakh, then the total requirement of family expenses would be 3 lakh multiplied by 20, which is equal to Rs 60 lakh.
What are life goal expenses?
Life goal expenses are the expenditure incurred when reaching a milestone in the life of the subscriber, or the dependents. For example, expenses increase on having a second child. Then, a corpus has to be ensured for a child's education and marriage.
What are outstanding debts?
An individual might have availed of a house loan or car loan, or a personal loan. The installments one requires to pay on the loans comprise the outstanding debts.
Other factors to consider before opting for a life cover of more than Rs 1 crore
Future requirements of spouse: Any policyholder should also consider whether the insurance cover is sufficient for the spouse’s future requirements, especially in the case of a non-working spouse. If the case of an unfortunate eventuality, the cover should ensure that the spouse’s existing and old age requirements are met. An individual can provide a life of dignity and comfort to the spouse by opting for the best term insurance plan, which provides a life cover of more than Rs 1 crore.
Inflation: An individual must account for inflation while selecting a term insurance plan. For example, if an individual’s requires Rs 50,000 each month for covering all costs, 7% inflation will increase the future costs to Rs 70,000 in the next five years. Within the next 10 years, the inflationary trend would increase the costs further up to Rs 1 lakh. The best insurance plan with a life cover of Rs 1 crore or more, can adjust the total cost with inflation.
Any individual should, however, remember that there is no ‘one-size-fits-all' approach while opting for a term insurance plan. The unique financial requirements of an individual along with a thorough analysis of one’s expenses, liabilities, investments and requirements will finally decide the amount of insurance cover. That being said, experts suggest evaluation of these factors after every 5 years. Reassessment of any subscriber’s existing plan will often reveal that the individual requires a life cover of more than Rs 1 crore.
Future Generali's Flexi Online Term Plan can provide a policyholder with a cover of Rs 1 crore at just Rs 28 per day for a healthy non-smoker male 30-year-old for a policy term of 35 years. Besides providing fixed income protection, this plan also the key feature of increasing income protection to take care of an individual’s growing financial requirements.