Term insurance plans can be an effective method of guarding against life’s uncertainties and ensuring the security of your family in adverse circumstances. Such policies offer protective coverage for a fixed period of time to those dependent on the policyholder through the payment of death benefits in the event of their passing on. Their main point of difference from traditional life insurance is in the durations of policies which are fixed rather than continuing throughout the policyholder’s life. Some types of term plans may or may not provide investment options and maturity benefits as in the case of traditional life insurance policies.
This coverage is provided in the form of payments made either periodically or in lump sum amounts by the policyholder, which are referred to as premiums. Most types of term plans often demand relatively smaller premium payments when compared to conventional life insurance policies due to the relatively shorter tenures involved.
When purchasing term insurance, the coverage amount or minimum sum assured is one of the most important aspects of the policy to consider. It should be carefully corroborated with your family’s existing needs as well as any potential additions to those needs in the future. The minimum sum assured can either be paid out in a lump sum amount on filing the claim or be disbursed in staggered amounts over a predetermined period of time. Keeping the term period in mind is also crucial in such situations. Depending upon the type of term plan, the sum assured may also increase or decrease over the course of the tenure in order to deal with issues such as inflation or debt respectively.
Factors To Consider :
There are a number of important factors to consider when determining the ideal minimum sum assured for your needs :
- Regular Household Expenses: Having an idea of what your annual household expenses will look like is an important first step in estimating the coverage amount. The base amount taken in your calculations for the sum assured should ideally be 15-20 times your annual household expenses, as a general thumb rule depending upon the tenure of your policy as well as the number of years you are expected to remain in the workforce. Additionally the number of people that require coverage will also affect this greatly in the case of policyholders with dependent children.
- Current/Future Income & Inflation: In the event of the policyholder’s demise, their source of income will have to be compensated for by the coverage amount. This is particularly relevant for single income households. In such cases, it is crucial to account for expected increases in their salary, particularly increments due to inflation as it can create significant increases to the expected household expenditure.
- Existing Assets, Debts & Liabilities: Listing off all assets such as securities, investments, property, vehicles, fixed deposits or mutual funds and balancing them with current liabilities such as debts, loans, mortgages etc. will allow you to include these one time expenses and ensure that there are no unaccounted financial burdens left on your family’s income after the death benefit is paid out.
- Tenure: Picking an appropriate tenure is vital in relation to the number of years the policyholder is expected to remain in the workforce and draw a steady source of income. Longer tenures often involve higher premium payments, while shorter plans may make premium returns, maturity benefits and investment options an important aspect of your term insurance depending upon the type of term plan.
- Funds For Future One Time Expenses: Savings for one time expenses in the future such as your children’s higher education or weddings may also be a point of consideration.
- Retirement Fund For Spouse/ Dependents: Term insurance coverage should also include funds for the retirement of your spouse if they are not earning, in order for them to enjoy a similar, comfortable lifestyle even in old age. This amount should also reflect any other dependents such as ageing parents and young children who may not be able to fend for themselves immediately after the policyholder’s death.
- Accidents & Illnesses: Accidental disability/incapacitation covers are also situations to consider as there is also a possibility of such events making the family’s revenue stream sun dry. Finally, any pre-existing or hereditary illnesses should also be considered as they also pose a similar risk to the well being of dependents. Such top ups may add to the premium amount but could also prove to be wise decisions in the long run.
Once all these factors have been carefully considered and accounted for, you may be able to arrive at an estimate for a level of coverage from your term insurance policy that is sufficient for your family’s needs. The various types of term plans available on the market have been structured to meet the needs of people from a variety of financial situations and backgrounds. If you opt for the iSelect Star Term Plan from Canara HSBC Oriental Bank of Commerce Life Insurance, you’ll get flexibility in coverage amounts as well as whole life cover, premium return and short tenures of up to 5 years to ensure your family’s financial security in any situation