Term insurance: Ensure sum assured covers loans and future expenses

Over the last year and a half, the realization about the importance of life insurance has grown rapidly. This is natural given the scale of the COVID-19 pandemic. The fear of being infected, and not being able to do enough for your family in case of an unfortunate incident, has become even more real during the second wave. At a daily average of over four lakh cases during the first week of May, the second wave saw the daily number of cases rise to four times the peak of the first wave.

In this backdrop, one aspect of life has become amply clear: the future belongs to only those who stay prepared for it. This is where a term life insurance policy comes in. While no one can disagree that life is priceless and a lost soul cannot be replaced, a term life insurance policy can make sure that your family can go on to live a decent life even in your absence. All you need to do is choose your nominee, pay a small premium amount to the insurer for a specific number of years and, in return, the insurer promises to pay a large cover amount to your family in case you die during that tenure. While there are various types of insurance products available in the market, term insurance offers comparatively much higher life coverage for the lowest premium amount. That is why it is among the most preferred and reliable life insurance options advised by most experts.

How to determine the right cover for you

While there is no standard rule for how much insurance coverage you should take, it is recommended that you have a coverage of 10-15 times your annual income. However, not every individual and family have the same requirements, nor do they live in similar circumstances. Hence, determining the term insurance cover that is suitable for your family is not a one-size-fits-all process. Your liabilities, current and future expenses, are the main factors that you must take into account while calculating the cover amount.

Current expenses and lifestyle

When buying term insurance, the prime purpose is to ensure that your family does not have to struggle financially in your absence. It is natural that you would want them to have the same standard of living, even in case of your absence. Apart from day-to-day expenses and utility bills, there are some other regular expenses as well that you need to consider such as the school or college fee of your kids, medical expenses of your parents, retirement planning of the spouse, and a lot more. To arrive at a rough estimate of the cover amount, you must take into account the current monthly expenses that you incur, as well as the number of years that your dependents would need a monthly income. At the same time, you must also consider the relentless march of inflation and incorporate it into your estimate.

Future anticipated expenses

No doubt, term insurance is a fool-proof backup plan that can help your family avoid a lot of financial hardship. Another powerful tool that can ensure a bright future for your children is quality education. Now, education is one aspect you would not want your children to compromise on in your absence as it can ensure that they lead decent lives and become financially independent. What you can do is estimate the number of years of formal education that your child would need and the cost of the same. This should form a major chunk of your life insurance coverage. You can also review it every few years as the number of years left for their formal education would decline. Besides education, there are also a few other future expenses that you must keep in mind, such as the marriage of your children, among others. Anticipating these in advance can help you plan better.

Covering liabilities

You would never want your family to be burdened by hefty EMI payments on loans that you may have sought for personal use, for buying an expensive car or gadget, or even to buy a house. Also, you would not want your family to sell your own house to repay the home loan and move to a rented place. So, when you decide on the cover amount for your term insurance plan, you must take into account for outstanding debt and increase the cover amount in the term policy that you wish to buy.

Estimating the exact amount of life insurance cover that you need is not an exact science. However, noting down your expenses, assets, and liabilities can surely help you understand what the future holds. Moreover, once you know that, you can plan for the same and ensure your family’s financial stability. Of course, you cannot predict everything, hence it is advisable to review your insurance needs periodically and make adjustments accordingly.