Today, a term insurance plan of Rs 1 crore might look enough for you but will the value of Rs 1 crore will be same in the future? May be not. In fact, this is just a marketing gimmick being played by the insurance companies and nothing else. How much insurance you need must be decided by your responsibilities, financial needs and financial goals for the future. Read on as we elaborate…
Let’s try to understand from the view points of two persons Akhil and Vinay: Akhil is 21 years of age and has just started working after graduation. He hasn’t taken any loan and he is not dependent upon anybody nor is anybody in his family dependent on him. In the second case, Vinay, 35, has a family to feed comprising his wife and 2 children. In such a scenario, Vinay might need a term insurance of more than Rs 1 crore. While, the same insurance plan might not be fit for Akhil. Understand the most important thing: People buy term insurance plan for long term. Inflation will reduce the value of Rs 1 crore in the future. E.g. even if take 5% inflation for the next 15 years, the value of Rs 1 crore will reduce to Rs 45 lakh.
Estimate your future needs: The education fees for higher studies is increasing in the country on an average by 8% annually. If higher studies today cost Rs 40 lakh then after 10 years the same may cost more than Rs 80 lakh. In such a scenario, if you take inflation into account then the insurance cover needs to be increased every year in proportion to rise in income. There are several websites and platforms from where you can buy insurance. You can also visit 5paisa.com where you can know about the right fit for you.
Keep an eye on your standard of living! God forbid, if something happens to you in the future then the family is the most affected. You must take this into account while deciding the insurance cover. For this, estimate your family expense and your financial goals for the future. Plan your insurance cover in such a way so that your family is at least able to sustain the same standard of living in the future.
Do an estimation of your savings Do an estimation of savings that you would require in your retired life. Do an estimation of your savings and investments, and how much corpus you will be able to create in the future. Now decide whether the money you are investing will be enough to create a sufficient corpus to meet your future needs or not.
Calculate the sum assured Suppose, you already have an active insurance plan. Use these metrics mentioned above to calculate the sum assured of the insurance plan. Just estimate your family expenses, add the inflation and then deduct it from your estimated savings. You will arrive at the sum assured of your current insurance plan.
Term insurance don’t have maturity benefits The term insurance plan is a type of vanilla life insurance product which means you will not get any maturity benefits at the time of its expiry.
More cover less premium: The term insurance requires a smaller amount of premium. But smoking and alcohol consumption can increase the premium substantially.
Now let’s talk about the duration of a term insurance plan: Choose the duration of your term insurance policy carefully. If the duration is too short, then it might affect the financial security of your family. Moreover, a prolonged term insurance plan can increase the amount of premium you pay in the long run.
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