Know the Minimum Cover for your Term Life Insurance Plan
“What is the actual worth of your life?”
Feels odd to hear this question, doesn’t it? Well, it is quite an important one to answer when you go out there in the market to shop for a suitable life insurance coverage plan. The main objective of opting for a life insurance policy, be it a term insurance plan, or whole life policy, is to provide your dependents and family members with financial support if something unfortunate were to happen to you. Your life cover should be sufficient and large enough to settle any outstanding dues that you might have along with also generating a sufficient income for your family to sustain their current lifestyle.
Further in this thread is a rough explanation of how you can actually come to a coverage amount for your term insurance plan or any other life insurance plan that is going to be sufficient to meet the needs and requirements of your loved ones.
If you opt for the right kind of policy, sufficient coverage amount will not be a huge burden on your wallet. Typical traditional life insurance plans generally offer a smaller coverage at a higher cost because they are considered to also be investment vehicles. At times, these policies turn out to be an option just for those that are really well off. For an average policy seeker, the right option would be a pure protection term insurance plan that can offer the same coverage amount at typically lower premium charges.
The tenure of the term insurance policy is equally important. Opting for coverage that ends when you reach somewhere in your 50s is not a great help, as this is the time when you might need it the most. On top of this, buying term plan coverage at that age will also be expensive. It is a good idea to opt for a plan that at least extends until the end of your working life.
In the past few years, most of the insurance providers have started offering online term insurance plans. These are much easier to understand, along with also being much more convenient and cheaper than the offline term plans as they usually involve an intermediary. The online term plans’ premiums are very low, so much so that many of the policy seekers actually doubt for there to be some catch involved. However, there is no such reason to doubt any online term insurance plan as long as you have made sure to submit only the correct information.
It is not a good idea to deny your consumption of alcohol, tobacco usage, or employment in an industry that falls under ‘hazardous.’ Additionally, if you have any relatives by the blood that have suffered from any illness in the past, you should make sure to disclose all details of any such ailment. These are the facts that have a great impact on your risk profile as an insured individual. Your claim in the future can end up getting rejected if you do not disclose any such important facts at the time of applying for a policy.
There are many agents in the market that might try and paint a different scenario in front of you, usually because they end up losing business when a policy seeker directly purchases a policy form the insurance provider. But online policy seekers receive the exact same quality of service from the insurance provider as those that seek policies offline. When there is the processing of a claim, there is no differentiation at all between a policy that is bought on an online platform and a policy that is bought via an agent. Apart from this, there are also rules laid out by the insurance authorities that the insurance companies need to abide by.
If you opt for a term insurance plan using an online platform, it also means that you need to be extremely alert when it is time for its renewal. With there being no agent involved in the procedure, there is nobody there who will push you to pay your future premiums. Additionally, the grace period offered by most of the insurance providers is also not very long. You can also avoid missing any of your premium payments by setting up an automated payment system. All that needs to be done by you is maintaining sufficient balance in your bank account near the due date of your premium payment.
Your insurance portfolio should definitely have a pure protection term insurance plan as a base. Once you have this, you can move onto adding insurance plans that have an investment side to it as well, such as ULIPs or traditional life plans.
4 Steps to Calculate Your Term Insurance Needs
Step 1: Be Aware of Your Family’s Income and Expenses
In this step, you should be having your monthly income figure in place. Then, you should move onto multiplying this number by the percentage that you want to aim at covering. Then consider your partner’s monthly income (if any) also any additional benefits that come along. After this, move onto deducting this amount with the amount you wish to cover. Once done, multiple roughly by 12x to annualize this amount. Once annualized, you should multiply the number with the duration your dependents will need the replacement income for.
Step 2: Be Aware the One-Time Needs of Your Dependents
You need to consider any one-time expenses that your family might have in the coming times. Be it the expenses for a child’s wedding, or for their further studies, any outstanding debts, or other personal needs, all need to be considered.
Step 3: Be Aware of Your Current Assets
You should know your current assets: cash, investments, house value, retirement plans, etc.
Step 4: Calculate Away!
You can then move to calculate the total requirement you have, and then deduct the existing assets, and ta-da, there is the amount of insurance coverage you require!
4 Times When Insurance Might Not Be For You
There are also times in life, where insurance might just not be the right choice for you. Some of these scenarios are:
1. No Dependants
You might not be having any people who depend on you, and hence, you might not require any life coverage.
2. Sufficient Assets
There might be enough assets at hand to take care of the needs of your family, so it is not sensible to spend funds on life cover.
3. Spouse Earns Well
Your partner might be having an income that is sufficient for sustaining and you are not required to spend money on life insurance.
4. You’ve Retired
The purpose of insurance is to replace the income of a person. A retired person, therefore, does not require any cover unless there are liabilities that go beyond retirement.
5 Times That Call for Extended Insurance Coverage
There are also times in life when you might be required to extend the scope of your insurance coverage. Some scenarios are:
1. Retired Parents
You should opt for additional coverage if you have parents that have retired or their income has a reduction because of any reason.
2. You Get Married
Even if your partner is working, there might be an income dependency, so you should adjust your cover accordingly.
3. You Have a Child
Once you become a parent, your responsibilities increase, so your cover should be extended to cover for your new member.
4. Taking a Huge Loan
If you are ever in a scenario where you have to borrow a large chunk of funds and there are insufficient funds to cover the EMIs, you should take up coverage equal to the outstanding loan amount.
5. Starting a New Business
If you end up quitting your job, you might need extra coverage as the additional employee benefits are no longer in play.