The sudden pandemic that caught the entire world unaware in 2020 has reinforced the fact that life is uncertain. Therefore, it is important to be prepared for the future. Buying a term insurance plan is one of the best ways to ascertain financial security.
These are pure life insurance plans that pay the benefits to your nominees in your untimely absence during the policy duration. The money received can ensure that your family members can sustain their lifestyle and achieve their future financial goals without any issues.
A term policy provides economic security, but it should offer sufficient benefits to make sure that your family does not face any difficulties in your absence. So, how do you determine the sum assured (SA)? Here are some guidelines to help you make your decision:
Understanding your value
If you are the sole earning member of your family, the life insurance term plan benefits will act as an income replacement. The money should be enough to meet the family’s regular expenses and fulfill their objectives, such as children’s higher education and wedding or your spouse’s retirement. Therefore, it is recommended that you calculate your actual value while determining the required term insurance coverage.
You will have to consider your age and income at the time of buying the policy to compute your actual value. Generally, most people take into account only their current household expenses to ascertain the insurance coverage. However, it is also important to consider your liabilities, such as home, personal, or vehicle loans. Ideally, the SA should be the gap between your assets and liabilities, and it must be adequate to meet your family’s increased estimated expenses due to inflation.
Human life value (HLV)
HLV is another aspect that plays an important role in calculating the adequate SA for your term policy. It is the present value of all your future earnings during the remaining years of your working life. This will help to determine the potential loss to your family in your sudden absence. HLV considers your current expenses, assets, future aspirations, and debts to help determine the right SA. You can seek the help of an online HLV calculator that takes into account factors, like your current age, retirement age, monthly expenditure, outstanding financial obligations, life goals, and savings.
Importance of opting for high term insurance coverage
Financial security
Term insurance plans in India are an affordable way to provide financial stability to your family in your absence. When you procure sufficient coverage, your loved ones will not face monetary distress while dealing with the emotional loss. The policy benefits can also pay any outstanding liability, ensuring there are no adverse consequences for your family members in your absence.
Accomplishment of future milestones
At various life stages, your family will have different financial goals, such as children’s education, their wedding, and retirement corpus. They can invest the lump-sum payout received from term insurance plans in India in different products that provide enough liquidity to meet these goals. This ensures that your family does not have to make any compromises.
Flexibility of payouts
Several insurers provide multiple payout options as per your family’s requirements. Your family may receive a particular amount of the SA as a lump-sum in case of an unfortunate event, which can they can use to repay any liabilities. The insurer can pay them the balance sum in regular installments over a predetermined period, which can take care of their daily expenses. Such convenience also saves your family from losing the benefits if they are not investment-savvy and are unable to make wise financial decisions if they get a lump-sum payout.
It is important to choose the appropriate term insurance coverage to protect your family from monetary challenges. So, take the time to calculate your value, and make the correct decision.
