Term insurance: Essential insights for securing your family's future

New Delhi: Do you ever think about what would happen if you were no longer in this world? Most of us don’t want to think about it, but it’s essential to consider. Just like how those who are the main earners for their families need to manage expenses, loans, and financial responsibilities, it’s equally essential to take insurance to manage life’s uncertainties.

Many insurance products are sold alongside investment like tied-in products.  Some offer returns on premiums, some promise money-back, while others provide plans to return the premium amount. But amidst all these insurance products, don’t lose focus and buy the most essential insurance, which is a simple term plan. Answer four questions to choose the right term plan and decide what kind of plan you need.

What is a term plan and how does it work?

Life insurance’s most basic plan is a term plan. Its concept is straightforward—pay premiums until a specified age. If the policyholder passes away during the term, their family receives a pre-decided insurance cover amount. Typically, term plans are available for durations from 60 to 65 years. There are no promises of returns or any form of money-back with this policy. It simply provides a lump-sum claim to the beneficiary upon the policyholder’s demise.

How much is the premium for a term plan?

The premium for a term plan is relatively affordable. If you are starting your career young, you can get a cover of one crore rupees for an annual premium of around Rs 6,000, which is about 500 rupees monthly. The premium depends on the age at which you buy the insurance and the size of the insurance cover you choose. According to experts, it’s better to buy a term plan early because the premium remains fixed throughout the entire tenure. It’s cheaper to get coverage at a younger age, and the cost of premiums increases with age.

How to determine the size of the insurance cover?

When purchasing term insurance, you are assessing the value of your life. You need to calculate whether your family members would be able to manage all their expenses in case of any unforeseen situation. When calculating, consider things like… First, what are the family’s needs and how much do they cost… such as children’s school fees, caring for elderly parents, household groceries, meaning you need to account for monthly expenses. Second, whether there is any type of debt such as home loans, car loans, or personal loans to be paid and then add your annual income. Do not forget to calculate the effect of inflation. Assume that your family’s monthly expenses are 50,000 rupees at this time. In 10 years with an average inflation rate of 6 percent, they will need 90,000 rupees for these expenses.

The most important thing is how to calculate it?

Actually, to take term plan, calculate it according to your and your family’s needs and then take the cover. Do not follow the popular rules. Usually, it is recommended to take cover 10 times your annual income. But these calculations are not necessarily right for everyone. Let’s assume your monthly income is 60,000 rupees, so your annual income is 7 lakh 20 thousand rupees. If you adopt the 10 times rule, then you should have coverage of 72 lakh rupees, but is this enough to secure your family’s future? Perhaps not. Therefore, determine the coverage amount according to your family’s needs.