How Much Term Insurance Cover One Should Have?

In this blog, you’ll learn how you can calculate the suitable term insurance coverage and what factors you must consider while doing that. 

But before that, let’s figure out what a term life insurance policy cover is.

What is term insurance?

Term insurance is a pure life cover, which ensures that your near and dear ones have enough money to survive and live comfortably even in your absence due to untimely death. Here, you pay a yearly premium to the insurer for a set number of years. In exchange, the insurer guarantees to pay your family a sum assured if you die during that time.

How much term insurance cover should you buy?

The term insurance amount depends on certain factors such as age, health, lifestyle, etc. Nowadays, you can use an online term insurance calculator to assess the total cost of your term insurance cover. Since everyone has a different lifestyle, the right term insurance plan would accommodate these varied needs to provide overall protection.

Let’s look at the different factors you must consider.

Additional Read: Life insurance – Calculate your Expected Term Insurance Coverage Requirement

Review your current financial standing

Firstly, determine your current annual income. The insurance thumb rule indicates that your cover should be at least 10-15X times your annualised income considering inflation and increasing living costs. For instance, if your yearly income is Rs. 5 lakhs, it’s prudent to get a term cover of at least Rs. 75 lakhs.

However, the amount will also depend on your present age. If you’re buying a term plan when you’re young, you must consider a higher rate of inflation and several changes in the dependencies and liabilities. The older you get, the lesser number of dependants you will have. So, if you are up to 35 years, your term coverage should be 15 to 18 times your yearly income.

This number shrinks as you age. For instance, 35 to 40 years aged individuals can have around 10 to 12 times the annualised income and the old, aged people need 5 to 10 times.

Evaluate your present and future liabilities

The right term cover policy will shield your family against present and future financial liabilities. You need to consider your outstanding loans, assets, other debts while deciding on a term insurance plan.

When it comes to assets, take account of your fixed deposits, recurring deposits, provident fund, mutual funds, realty investments, etc. The total amount of your assets can be deducted from your insurance coverage amount.

Now, think about the loans and EMIs, your family will service in your absence. Make sure your coverage meets your future liability needs, and your family retains their current lifestyle even in your absence.

Key financial objectives, including your child’s education, marriage, retirement corpus for your spouse, should also be considered when buying the term insurance plan.

Additional Read: 5 Points to Look at Before Purchasing Your Health Insurance Plan

Over to you

Now that you know how much term insurance you should have, it’s time to find yourself a reliable financial partner. Turn to Tata Capital’s Moneyfy app and buy insurance products tailored to your financial needs. Download the app today.