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How Long Should My Life Insurance Cover Be?

dateKnowledge Centre Team dateDecember 29, 2020 views89 Views
How Long Should My Life Insurance Cover Be?

Life insurance plans are essential for any individual who wants to secure their family's future, especially if they are the income source for their household. Paying a fixed amount of money every month to an insurance company as a premium will ensure that if the person passes away, the family's financial downfall will be cushioned by installments of money that will come in every month.

The diversification of the demographic who look for insurances – (with people starting as early as twenty-five years of age) has meant that people are willing to pay large sums of money to secure their future and their family. In India, various companies' life insurance policy offers high customizability levels in terms of duration, frequency of payment, and the coverage amount. It is paramount that you evaluate your financial status, your family's financial literacy, and living expenses to estimate the time and allowance that will be provided to your family after your death.

One such parameter you will have to determine is the length of your insurance cover. This article will provide you with a set of factors to calculate an appropriate duration for India’s life insurance policy.

What is Term Life Insurance Policy?

Term life insurance policy in India involves paying a certain amount of premium in regular intervals for a specific period. At The end of the term, the nominee will be paid an assured sum by the company, or in case you die an untimely death. Most companies that offer term life insurance policy in India do not provide maturity benefits, which is a considerable disadvantage. Still, it offers higher coverage for smaller premiums than other insurance packages available to Indian citizens.

How much Coverage Do I Need?

To see how much coverage you need, to evaluate many factors such as your monthly expenses, any outstanding loans, the number of non-earning members of your family, children who may require additional sums of money in the future, etc.

Step 1: How much is your dependent/family's monthly expense?

Calculate how much your family spends in a month. Do not be stingy when it comes to this estimation – calculate a little above the used amount during an average month where there are no additional expenses like festivities, birthdays etc. You can also consider the medical bills that frequently come – especially if you have a medically compromised person in your family, like an elderly parent or a child with a pre-existing/genetic condition that they were born with that requires extra care.

It is advised that you go for coverage ten to fifteen times the amount spent on annual expenses. If your monthly expense comes to Rs. 60,000, your household will require above Rs. 1 crore in the future, if not more. This amount should also consider factors outside your family, such as inflation rates, rising healthcare costs, etc. Even the prices of household items like vegetables and groceries are on the rise, so it is advised that you calculate 10% higher the number of household expenses you have right now.

Step 2. What are your liabilities?

In this context, liabilities refer to loans and outstanding payments that are yet to be paid off, especially those in your name. In case you die an untimely death, these financial burdens will be placed on the next breadwinner of your family and will take a heavy toll on the rest of your family's standards of living. If your debt exceeds the house expenses, there is a possibility that your family may even go bankrupt. No one wants to leave their family in debt, which is why you should add the liability amount to your estimate.

For instance, if you have an outstanding car loan amount that you need to pay off that is worth ten lakhs, you should consider it. New homeowners, too, can calculate their approximate value based on the length of their mortgage – if your house is leased for thirty years, your plan should be equal to or more than that amount.

Step 3. What would be future life events that your family will need financial assistance?

Every family has goals that they want to achieve together, especially if there are young kids. Every parent wants their child to have the best education possible. Education costs are skyrocketing, so your coverage must include those expenses as well. Depending on how many kids you have and once you have a rough idea of what field they may go into, how bright they are and if there is a chance of them going abroad, calculate the amount to cover their education. Similarly, set aside some money for their marriage as well.

Step 4. Will your spouse/parents require a requirement?

If you have people in your family who are nearing retirement and are not earning at the moment, you may want to set aside some money for their post-retirement upkeep. Spouses, parents, etc., will require a certain amount of allowance to maintain their current living standards. Even if they have a job and a pension plan, setting aside this amount as a conservative estimate will come in handy and can be used by your family to cushion the blow of losing its primary breadwinner.

Step 5: How much do you have now?

If you have already invested money in other life insurance plans, mutual funds, fixed deposits, provident funds, and real estate, calculate it and sum it up to a rounded figure. If you have inherited land or possess gold or other valuables that your family will be okay with selling, add its approximate value to your estimates too. The total amount can be deducted from your coverage because this is a fixed resource that your family can avail of at any time.

Step 6: What is your age?

If you arrive at an exorbitantly high figure for you after all this calculation, you may want to focus on paying off your debts before investing in life insurance. If you are young and healthy with no dangerous habits like smoking, drinking, or driving fast, even amounts as high as two to three crores can be paid off by the time you are fifty. In the same manner, if your children are already settled and married with their sources of income, or if your parents have passed away and your spouse is a working individual, you need not worry about a large insurance sum.

But if you are in the latter half of your life with large sums as outstanding payment, think twice and thrice before investing or paying premiums recklessly. You may leave your family behind in massive debt, for which they will not be thankful. Try to lower your monthly expenses and save up organically, into considering factors mentioned earlier, like future payments, liabilities, inflation, etc.

The higher the coverage amount you have calculated, the longer you will need to pay. Depending on the amount of money you want your family to receive at the end of the plan, whether it is staggered or lump sum, you will have to pay for a more extended period. The duration also depends on how much you can spare every month. If you are already paying off loan amounts and outstanding debt like EMI, it is unlikely that you can regularly put away large sums of money.

Unless you belong to a field where the money is earned sporadically in huge spurts and not in smaller regular amounts, you should not assume that you will pay all your premiums. On the other hand, if there is a chance that you will receive a large sum of money in one go as a part of your work, you can directly invest it in a yearly plan that will cover your insurance expenses for that year. You need to pick your goals appropriately – the length of your insurance coverage depends on your current financial status and your estimates for your family's future.

That being said, life insurance policy in India offers various plans that can benefit even those in crippling debt. They are confident that they can pay the premiums on time. Evaluating your life insurance needs every once in a while, perhaps twice a decade will give you an idea of how much you will need and how much coverage you should go for.

Most companies that offer term life insurance policy in India have packages that last one, two, or three decades. Some companies provide five- or ten-year increments that can extend to 99-year plans, which are perfect for people who can afford to set aside a fixed sum for an extended time and do not have underlying risks of life. 99-year plans are ideal, and can provide you with an unparalleled extended coverage that can take care of your family for decades ahead. The Smart Lifelong Plan provides additional benefits like loyalty benefits and investment funds as well. Here are the details of this excellent plan:

ULIPs for planning your retirement

Your decision determines the future of your family, so make sure you take into account all of these factors before you go ahead with your decision.

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Frequently Asked Questions (FAQs) Related to Life Insurance Policies

The premium is one of the most important factors to consider before buying a life insurance policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of www.canarahsbclife.com.

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance plan. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Life insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age: It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chance of contracting diseases is low. Young people also opt for the best life insurance policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender: The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits: The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term: Policy terms are also taken into consideration by insurers while deciding the premium amount. Life insurance policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the best life insurance policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation: The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physician’s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence, there are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the life insurance policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance plan.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: A life insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the life insurance policy, the insurance companies generally pay 80% of the total premiums paid.

Buying the best life insurance plan online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. The best life insurance policies online insurance offer higher benefits. Customers should, however, buy online life insurance policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one life insurance policy to increase the cover or avoid claim rejection. In case of multiple life insurance policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy a life insurance policy, the insurance company asks for the nominee details. Only the person named as the nominee in the life insurance plan can cash out in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term, the beneficiary receives the death benefit. In case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment option is chosen, the policy works as a source of regular income.

It is a popular misconception that life insurance plans are only for accidental deaths. A term life insurance plan like iSelect Star Term Plan also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy a life insurance plan in your early 20s because it is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy the best life insurance plan at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why life insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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