Your life insurance policy should ideally cover your remaining long-term debts and other critical financial goals of your family members.
The ongoing Covid-19 pandemic has given all of us a grim reminder that life could be highly uncertain. But the fact is, we might not be able to predict what lies ahead; however, taking certain important steps in advance to minimise the impact of life’s vagaries on our family’s finances is something in our control.
One of these steps is to get adequate life insurance protection so that our dependent family members are not left in the lurch if something untoward unexpectedly happens to us. In doing so, it might be a better idea to get a term life insurance policy instead of a traditional policy or an endowment plan because a much larger sum assured could be secured at affordable premiums with the former, especially if the policy is started at a young age.
But how do you determine the ideal term insurance coverage level for your family’s future financial requirements? Your life policy should ideally cover your remaining long-term debts (like an existing home loan) and other critical financial goals of your family members.
A popular rule of thumb states that the ideal sum assured of your life insurance plan should be 10 – 20 times your current annual income. Meaning, if your current annual income is Rs 10 lakh, your life insurance plan should have a sum assured of at least Rs 1 crore to Rs 2 crore. The more accurate way, however, would be to evaluate your coverage requirements factoring in your current finances, financial goals and inflation, according to BankBazaar.
You may calculate this by multiplying your current annual expenses with the number of years left till retirement combined with the current value of your life goals and your total loans and liabilities minus your existing savings and investments. Keep in mind, the maximum coverage level applicable to you would be based on your current income; so, you might not be allowed to buy a policy whose sum assured is more than 30 times your current annual income in some cases.
So, if you’re looking to purchase a term life plan, here are the indicative annual premiums for 20 such policies with a sum assured of Rs 1 crore and a policy term of 30 years. Do note, all the indicative annual premiums have been calculated for a 30-year-old salaried non-smoker unmarried male residing in Bengaluru earning Rs 5 lakh annually.
You’ll be well-advised to focus not just on the premium obligations but also the insurer’s claim settlement ratio, policy features and benefits while finalizing your decision. Keep in mind the premiums applicable to you could be different depending on your age, income, gender, policy features, or any other terms and conditions of your chosen insurer.
What Does a Term Plan with a Sum Assured of Rs 1 Crore Cost?
Disclaimer: Data pertains to term insurance cover of Rs 1 crore for a 30-year-old, salaried, non-smoker male (unmarried), residing in Bengaluru, earning Rs 5 lakh annually, for a 30-year term. The table is not exhaustive as it excludes companies for which data is not available on their website. Data as of 20 July 2021. *The insurers have been listed in descending order based on their death claim settlement ratios as per the IRDA Annual Report 2019-2020.
Data compiled by BankBazaar.com, an online marketplace for loans, credit cards and more.