Term insurance is a need in your financial world akin to the need for water in life. Term insurance allows your family to survive the worst that life can throw at them and maintain their financial wellbeing. However, like everything else except air, it costs money. Though, how much is the real question.
How Much Life Cover Should You Have?
One of the primary factors that determine the cost of your life cover is, ‘how big a cover you need?’ The price of a base life cover of Rs. 1 crore should realistically be lower than a cover of Rs. 3 crores.
So, the question is – how much term life cover do you need? Ideally, you can estimate it based on the following factors:
- Money required today to take care of your dependents’ life and regular expenses for the next 30-40 years (depending on your current age)
- The money you should invest today to meet the important life goals of your children and dependents; for example, children’s higher education and wedding costs
- How much financial liability you have as of now; including, home loans, car and business loans
- Final expenses for rites and transfer costs
Usually, this amount comes about 10 – 15 times your annual take-home income. If you stretch your finances a bit, the total amount can go up to 20 times your take home figure. However, you can comfortably take an amount that is 15 times your current annual income.
Thus, if you are earning Rs. 20 lakhs a year, you can choose for a term cover of Rs. 3 crores. You will need to have an annual income in excess of Rs. 30 lakhs to consider a life cover of Rs. 5 crores.
How Much Does Term Insurance Cost?
The cost of term insurance coverage may vary based on multiple factors, even from one life insurer to others. The cost of Rs. 5 crore term cover with iSelect Star term plan from Canara HSBC Oriental Bank of Commerce Life Insurance would be as follows:
- If you are 30 years old, non-smoking male, your annual premium will be about Rs. 42,000, or Rs. 3800 per month
- If you are a 30 years old, non-smoking female, your annual premium for the same cover will be Rs. 36,000 or Rs. 3200 per month
These are base premium cost only for life cover benefit. In case of diagnosis of Terminal Illness or on occurrence of death, whichever is earlier, sum assured on death is payable.
You can choose from a wide range of benefits that are offered by iSelect Star Term Plan. Based on your choices the premium may increase marginally. Some of the most useful additional benefits you should include in your term plan are:
- Accidental disability premium waiver benefit
- Accidental disability cover for financial support in case of severe disability
- Life cover for the spouse, especially when they are a homemaker
- Allocate a portion of your total sum assured to regular income pay-out option
Other Factors Which Can Affect The Premium
Apart from the regular benefits, amount of cover and your age, there are many factors that determines your final term insurance premium. Most of these factors are in your control and, in fact, depend on your choices, while others may be completely out of your access.
Following factors can increase or decrease your premium outlay:
- Policy term (PT): The higher the policy term the higher your total premium will be.
- Premium payment term (PPT): The shorter your PPT the higher your immediate premium outlay would be. However, your total premium outflow will be lower than regular premium payment options, where PPT = PT.
- Your existing health condition: If you have an existing medical condition or a disability, your premium would be higher than others.
- Your Lifestyle Habits: If you are a smoker, or drink heavily, your premium for the same amount of term life cover would be higher.
While the policy term and premium payment term of your plan are in your control, the health conditions may not be. However, if you have such a health condition which warrants the insurer to increase your premium, you should consider the cover all the more.
Life insurer would only charge a higher premium when there is clearly a higher degree of risk to your life. Thus, you should secure the life cover for your family’s financial safety even if at a little higher cost.