Ideally a Good Amount of Term Insurance Coverage would be around 10 to 12 times your current annual income. So if your annual income is Rs. 5 lakh, you should be having at least Rs. 50 Lakh of sum assured via Term Insurance, in which you will have to pay low premium of around Rs. 500 to Rs. 800 per month depending on your age, smoking / drinking habits, and other factors.
Let us understand more about Good Amount of Term Insurance Coverage in detail.
- Good Amount of Term Insurance Coverage you should have
- Factors that affect Term Insurance Coverage
- Premium of Term Insurance
- Is 50 lakh term insurance enough?
- Can a person take 2 term insurance?
- How much does a term insurance cost?
Good Amount of Term Insurance Coverage you should have
- Having at least 10 to 12 times your annual income would be a good Term Insurance coverage that will help your family / nominees financially in case of your sudden death
- So for example, if your annual income is Rs. 5 lakh, you should be having at least Rs. 50 Lakh of sum assured as part of Term Insurance
- The premiums for Term Insurance will be low compared to other money back plans, since term insurance is the purest form of life insurance you can have
- Term insurance does not involve investments hence the calculated premium is low that you pay on yearly or half yearly basis based on your choice
- There is Return of Premiums benefit as one of the options in Term Insurance that can help you get back your Term Insurance premiums as part of maturity benefit
- The death benefit includes sum assured amount being paid to your family / nominee in case of your sudden demise to help them cover for monthly living expenses and long term liabilities such as home loan, car loan, etc.
ALSO READ: Top 9 Benefits of Term Insurance
Factors that affect Term Insurance Coverage
There are multiple factors that should be used to decide the Term Insurance Coverage:
Your annual income should be one of the important factors to decide the amount of Term Insurance coverage you should be planning for. For example, if your annual income is Rs. 10 Lakh, you should be at least having Rs. 1 crore of term insurance coverage.
This will help your family members to have the sum assured for the upcoming years after your demise.
It is also important to consider annual expenses while taking term insurance with required coverage. Annual expenses is the main factor that will act as a liability for your family members in upcoming years.
For example, if the annual expenses is Rs. 3.6 lakh (Rs. 30,000 per month), next 10 years expenses would be around Rs. 36 lakh, not considering inflation, so Rs. 50 lakh sum assured should be a good amount of term insurance coverage in this case.
And if you think that none of the family member would be able to work in future than Rs. 1 crore term insurance coverage would be better on the safe side to cover for these expenses.
The sum assured received can be invested as lump sum amount in mutual funds, and SWP (Systematic Withdrawal Plan) can be used to cover for monthly expenses regularly, while the investment grows.
Long Term Liabilities
You should also consider long term liabilities like home loan, car loan, and any other loans for which you are currently paying EMIs.
These EMIs will continue after your demise and your family members have to pay these EMIs, so in this case, term insurance coverage becomes quite important.
The coverage amount should be greater than the sum of all current liabilities for which you are paying EMIs.
Number of Dependents
How many number of dependents do you currently have in your family? These dependents are the ones who are dependent on you for family income and expecting you to put food on the table.
If you are the only bread winner of family currently, you should be thinking about your dependents in the situation where you are not present for them.
More number of dependents meaning high term insurance coverage will be required, so this is also an important factor to consider while deciding for term insurance coverage amount.
Premium of Term Insurance
Premium amount is the amount that you need to pay to buy term insurance with sum assured on yearly or half yearly basis as part of your life insurance.
The premium amount to be paid for term insurance is low compared to other money back plans including traditional plans and ULIP (Unit Linked Insurance Plan).
This premium amount depends on your age, smoking / drinking habits and other factors. If you buy term insurance early in your life, the premium amount will be less compared to buying term insurance in later stage of life.
Smoking and drinking habits will also make the premium more expensive compared to premium paid for a non smoking person.
Is 50 lakh term insurance enough?
It depends on your requirement, annual income and expenses, long term liabilities, etc. 50 lakh term insurance should be enough if this amount is around 10 to 12 times of your annual income.
But if you have more long term liabilities and dependents than consider a higher amount of term insurance coverage.
Can a person take 2 term insurance?
Yes a person can take 2 term insurance and both can be claimed by family members after the death of policy holder, provided the premiums of both term insurance were paid on time by the policyholder.
How much does a term insurance cost?
Usually you pay around Rs. 500 per month for term insurance of Rs. 50 Lakh if your age is in the range of 20 to 25 years. The older you get, the premium amount will increase and based on your sum assured amount, the premium amount will be decided.
For Rs. 1 crore term insurance, the premium amount would increase to Rs. 800 to Rs. 1000 per month.
So based on your annual income, expenses, long term liabilities and number of dependents, you must decide the term insurance coverage amount to cover for the expenses of your family members in your absence.
In case you need assistance or guidance in buying the best Life Insurance for you, please Fill this Form to get more information.
Some more Reading:
- Types of Life Insurance in India
- 6 Tax Saving Options to Save Income Tax
- Types of General Insurance in India
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