One of the easiest and most affordable ways to protect your family against financial uncertainty in your sudden absence is by investing in a term insurance plan. It is a pure life insurance policy that pays the policy benefits to your nominees in case of an unforeseen event occurring during its duration. Most term plans have no maturity benefits, which makes them less expensive compared to other life insurance policies like money-back and endowment plans.
The main objective of a term plan is to ensure that your family does not face any financial distress and can sustain their lifestyle in your absence. Therefore, it is essential to choose the right sum assured (SA). If you select an inadequate SA, your family may face several difficulties, like:
- Financial burden
If an untoward incident results in your sudden absence, your nominees will receive the term insurance benefits. This amount may be sufficient to take care of their regular expenses. However, if your children want to pursue higher education, especially at an international university, the SA received may not be enough to meet these costs. Your family may face an insurmountable monetary strain to meet the high cost of international education.
- Inability to achieve future goals
Financial goals and dreams vary at every stage during your lifetime. You may have dream of traveling the world, moving into a bigger home, or starting a business once you retire. In your sudden absence, your family will have to put aside all these future dreams and goals, as the term insurance benefits may be only enough to sustain their daily expenditure.
- Incapability to repay outstanding loans
You may have taken a home loan, car loan, or personal loan to meet various requirements. These are long-term liabilities, which you need to repay over several years. If something untoward happens with you, your family will have to take the trouble of repaying these obligations. If you buy term insurance with a lower SA, your family may not have the required funds to repay all your liabilities. They may lose their home and face other consequences due to non-payment.
So, you need to opt for a suitable SA to ensure that your family does not face these problems.Also, you can consider these aspects to determine the appropriate term insurance coverage:
- Current lifestyle and expenses
Calculate your current income and expenses based on your lifestyle. Ascertain the future needs after considering an inflationary increase to sustain the present lifestyle. Also, bear in mind that as income rises, your lifestyle improves. So, keep this in mind while calculating the SA.
- Outstanding liabilities
Take all your pending debts into account. Add this amount to your future costs.
- Family’s monetary objectives
You need to consider your family’s future financial goals, which include children’s education and wedding or retirement corpus for your spouse. Include this sum in the expenses and liabilities calculated above.
- Investments and savings
Finally, bear in mind your liquid investments, such as shares, Unit-Linked Insurance Plans (ULIPs), mutual funds, fixed deposits, and other savings. Deduct this from the amount calculated in the above three steps. The shortfall is the minimum SA you must choose when buying a term insurance plan.
Many people avoid purchasing a term plan due to the higher premium associated with it. However, spend some time doing your research and compare different policies offered by various insurers.
One way to lower the premium is by buying an online term plan. Insurers eliminate agents’ commissions and reduce administrative and other overheads when you purchase term insurance online. These cost-savings often help you find a more economical premium, which allows you to buy a higher SA. Insurers also offer flexible premium payment options, such as monthly, quarterly, semi-annual, and annual to ensure you do not face any financial stress. Evaluate your options and buy a term plan today.