Term insurance plan is a type of life protection scheme that provides coverage for a predetermined period of time. The policy provides a death benefit to the beneficiary in case of untimely death of the policyholder. Unlike the whole life insurance policy, the term plan will provide the sum assured only if death occurs within the tenure of the policy. Buying the right amount of term insurance coverage is important to ensure the financial security of your loved ones .You probably cannot select the ideal amount of life insurance coverage. But you can easily make an estimate if you analyse your present financial situation and picture how much your loved ones will need in your absence
Deciding on the cover amount also depends on a number of factors such as lifestyle, the number of earning members in the family, inflation, spending habits etc. There are some generally accepted rules that will help you decide the right coverage amount. Let’s have a look at them
10 times the income:
A term insurance cover should be atleast 10 times your annual income. According to experts, the 10 times income rule provides strong financial security to a family for at least the period of 10 years, if the sole wage earner dies prematurely.
Analyse the needs:
Debt, mortgage, education, child’s marriage are some of the important areas to consider before deciding on the cover amount. Take a deep look at all your family’s needs, loans, liabilities or any other protection plan already in place. Decide for how many years your family would need financial backing. The time period may be the number of years before your youngest child graduates or starts to earn.
The online calculator:
Use this online tool to calculate the amount of coverage you need. There are several insurance providers that offer this feature to help you pinpoint the ideal cover amount. The online term insurance calculator analyses your expense profile and the present income level of your family. This tool also takes into consideration several other important factors such as inflation, tax rate, risk appetite etc.
Use this online tool to calculate the amount of coverage you need