Minimum sum assured for a term plan: What to consider
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While creating a financial plan for the future, many people may opt for term insurance. A term plan offers life cover to the policyholder for a certain period. If anything untoward happens to them during the policy term, their nominee receives the sum assured amount. The main objective of a term plan is to provide the individual’s family with financial stability when they need it the most. To ensure your family is well taken care of, you must select the right sum assured for your term insurance policy.
Factors to Consider
To understand the minimum sum assured you need to opt for, you must consider these crucial factors:
Everyday Expenses
The payout from the term plan will be used to help your family deal with their day-to-day expenses. A good rule of thumb is to opt for a sum assured amount that is at least 15 times your current income. If you can pay higher premiums, opt for an amount that is 20 times your income instead. You also need to factor in your liabilities. How many people depend on you financially? Do you have any outstanding loans that others might have to take care of for you? The answers to these questions will impact your sum assured amount.Expected Inflation
India is known for experiencing high rates of inflation. The actual value of money decreases every day. Your term plan provides financial stability in the future. So, you need to make sure that your sum assured is inflation-proof. Use current inflation trends to understand what your family’s expenses will likely be in 15 or 20 years. You can then opt for a term policy that offers the required protection.Existing Debts, Liabilities and Assets
Along with your term plan, you must have made other investments. Think about what kind of returns your family will earn from them. You need to balance your investment returns against your debts and liabilities. By doing this, you will receive an overview of what your family may need in the future.Future Expenses
While calculating the minimum sum assured, it’s a good idea to add potential large one-time expenses to your assumptions. For example, you may want to opt for a sum assured that could also help pay for your child’s higher education or their wedding. You might want to opt for an amount that will allow your family to put a down payment on a home while still maintaining their standard of living.Retirement Funds
Most often, people worry about securing finances for their retirement. We’re sure you want to secure your spouse’s golden years even if you aren’t there with them. You can opt for a higher sum assured amount that will help your spouse with their retirement plan as well.
Additional Riders
While your term plan offers life cover, you can opt for riders to enhance your policy. You can choose to add a critical illness rider that provides you with a payment if you are diagnosed with a covered critical illness. Additionally, you can opt for an accidental death add-on. If the insured passes away due to an accident, the nominee receives an additional benefit along with the sum assured amount.
Finding the Right Plan for Your Needs
Once you’ve considered these vital factors, you can look for plans that meet your requirements. While browsing for plans, you should check:
The Sum Assured Amount
Remember, you need to opt for a plan that will provide you with the payout your family needs.
The Premium
There is a lot of competition in the insurance market today. So, you should look around for a term insurance policy that offers you the coverage you want at an affordable cost.
Available Rider
If you’d like to opt for riders with your policy, make sure your insurance provider offers them. Not all term insurance plans come with the same add-ons. So, look at all your options before you finally decide.
Benefits of Term Plans
Financial Stability
Nobody knows what life has in store for them. An accident could take you away from your family. A term plan allows you to provide your family with financial stability no matter what happens.
Customised Cover
You can pick a term insurance plan based on your specific needs and requirements. You can opt for a sum assured that works for you and even get add-ons and riders to bump up your cover.
Pick Your Payout
Term plan policyholders have the unique ability to decide how they want their nominee to receive the payout. You can opt to have the money provided as a single, lump-sum payout. Or, you can ask your insurer to provide your family with monthly or annual payouts. You should base your decision on your family’s financial needs.
Purchasing a term plan can often seem complicated. But once you understand the minimum sum assured your family needs, you can find a plan that meets your requirements.
Related Articles
- Sum Assured vs Sum Insured
- Are Add-ons and Optional Features of Term Insurance Really Beneficial?
- 4 Simple Methods to Calculate : How Much Term Insurance You Need
- Benefits of Term Insurance
ARN - ED/10/23/5706
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