Death – something none of us would ever like to talk about. Living in the moment has become the new mantra. Although living in the present is the best thing we can do, death also is inevitable. With each passing year, we form new relationships and we take on new responsibilities. Choosing the right financial resources such as a life insurance plan, can help cover the financial shock on your loved ones if something happens to you. When you buy term insurance, it has no value, in the sense that only benefit upon death is guaranteed by the policy. Term insurance covers you for a certain period or 'term' of your life. If the policyholder dies within the policy term, the nominees are given the benefits of the plan. The advantage of buying term insurance is that it
is less expensive than permanent insurance. In permanent insurance, you start paying from the day of buying the policy and keep paying until death. Term insurance gives you more clarity and structure. Obviously, at the end of the day, you should buy insurance according to your priorities, but also examine to find out what will benefit you the most.
The premiums are different for everybody, as they are calculated based on the factors like age, health conditions, and life expectancy to offer you the best term insurance policy for your needs. Here, you need to ensure that you are not hiding any important information related to your health to the insurers. Your medical reports and underlying conditions, if any, need to be revealed at the time of buying insurance. Premiums will be fixed for the length of your term. If a policyholder dies during the contract period, then the company will pay the face value of the policy. However, if the policyholder dies after the expiration of the insurance, then there shall be no coverage.
What is the ideal length of the term insurance cover?
Most insurance companies cover the policyholders for up to 75-85 years of age while some others may provide coverage till the age of 99. It varies from insurer to insurer and can also be negotiated. Evaluating the length of a term insurance plan is as important as determining the coverage needs. You need to think about the money your loved ones may need if something happens to you.
If you are in your 20's
- Buying a term insurance depends on what age you currently are and your retirement plans. Let's say you are in your 20's and are likely to retire by the age of 60; then, you must go for a 35-40-year term plan. This will get you covered up until your desired retirement age.
- It is good to think and plan for your future, but honestly, if you are in your 20's, you should inculcate a savings habit rather than investing in term plans. At such a young age, when you do not have family responsibilities, term insurance will be of no use for you. Chances are your parents have already done that for you.
In your 30's and 40's
- When you enter your 30's or 40's, you will likely get married and start your own family. Now that you have people who are dependent on you, you should start thinking about buying term insurance plans.
- At this age, you should opt for a 35-40-year term insurance, again, depending on the type of your business and retirement plans or employment type.
In your 50's and 60's
- When you are older, around 50-60 years of age, by this time, your children will likely be all settled, and the burden on you to work and pay bills will reduce. At this age, you can opt for an affordable term plan as you would've already lived more than half your life. Go for a 15-25-year plan.
Factors that you should consider while evaluating your coverage needs
When it comes to these things, everybody is going to give you generic advice, but no two situations can ever be the same. Your income level, expense level, the size of your family, and your debts are also important determinants, and these things can never be the same for any two people.
For a better understanding, let us look at all these factors one by one
- Monthly expenses
Suppose your yearly expenses are about Rs. 5 Lakh. Now, it is usually advisable to go for a 10-15 times coverage of your annual expenses. The reason you should go for a higher cover is that inflation rates will make everything costlier for you and your family in the coming years. To cover your family in the future, you need to calculate, keeping in mind the future prices. So, your estimated coverage should be 75 lakhs.
- Your liabilities
It is always advisable not to put yourself in an unfortunate space by piling up debts. If you have debts, include the amount in your coverage for a safer side so that your family does not have to struggle to pay off your debts.
- Considering major events of life
Let's say you have two children; you need to consider their education and wedding expenses. Now, even if you invest in other options, there will still be a lot more left. Add that in the coverage.
These are the things that will help you calculate exactly. But, since these events are so far away in the future, it is difficult to determine the amounts exactly. So, if you think your family can do well with 80,000 a month, you should estimate it as 1 lakh. The more, the better. When you are considering buying a life insurance plan, it is important that you know what type of insurance will suit your needs and what should be an adequate cover. You must know the amount that will be needed to cover the expenses of your loved ones.