How much cover should I take in my term insurance?

When uncertain times hit, it is always good to be prepared. A loss of a loved one can be mentally, physically, emotionally, and financially draining. Surviving without the sole provider can take a toll on loved ones. Term insurance is a good financial shield to protect your love during such unforeseen circumstances.

The meaning of term insurance is to provide a life cover for a certain period. It allows you to get a huge sum insured for a lower rate of premium. The insurance company pays this sum to your nominee in case of your sudden demise. When you are determining the sum of your term insurance, here are some factors that you need to consider –

Income and earnings

While estimating the sum cover, your current annual income plays a significant role. A general recommendation is to opt for an amount that is at least ten to fifteen times your current annual income. This is because insurance is a safety net for the future. You should also consider inflation and an increase in the cost of living while estimating the financial needs of the future. Also, it is important to ensure that in your existing income; you can pay your term insurance premium with ease. The right life cover is the one that balances the premium and the sum assured.

Age

While buying term insurance, your age matters in determining the sum you need to be assured of. Financial needs vary in different stages of your life. In your early to mid-20s, there is not much worry as you may not have any financial liabilities. While on getting married, your liabilities are likely to grow. When you are taking a term plan, say, for 20 years, estimate what financial expenses you foresee in the coming years. Choose an insurance sum that will cover your present and future financial needs. Also, the younger you are, the lower your insurance premium is. This is because, at a young age, you are comparatively healthier. 

Current financial expenses

An individual’s income determines their lifestyle and quality of life. The reason people pay term insurance premiums is to ensure that their absence does not negatively affect the family’s finances. In this day and age, along with necessities, there are a bunch of lifestyle expenses people incur. While selecting your sum, calculate the amount that will sufficiently meet your family’s needs. Also, consider a higher rate of inflation while estimating future expenses.

Existing and future liabilities

When you are planning your insurance sum, your loans and liabilities are some of the most important things to consider. When you take a loan, there is a nominee you list who pays your loan in case of your absence. Also, if there are any assets on the mortgage, in your absence, the bank will probably seize them. Loans and liabilities can cause a financial burden to your loved ones in your absence. When you are using a term insurance calculator, it is important to ensure that the sum assured will be more than enough to clear all your liabilities. Do consider the probable loans that you might take in the future for your child’s education or for a bigger home. Your financial goals will determine how much loan you might take in the future. Purchase a cover that suffices to pay off your existing and future liabilities.

Term insurance tenure and premiums

Considering the tenure of your term insurance is vital when you are factoring in different components. The tenure of term insurance reflects the number of years you have a life cover for. For example, at 25, if you are buying term insurance for 20 years, you get a life cover till the age of 45. So according to the tenure, you can estimate the affordability of your premium and also the sum cover you need. It is important to opt for a term insurance policy that will easily fit your budget in the present and future. As to keeping your term policy, you need to pay the premiums on time.

Whether you are purchasing term insurance online or offline, you need to draft an estimate of what your term insurance plan looks like. There are several term insurance calculators available online that help in calculating and estimating all variables of your term insurance. Don’t rush for the cheapest premium or the largest cover, instead choose one that fits your budget.