"Jo bachchon se kare pyaar, woh term insurance ko kaise kare inkaar!" – If you love your family, term life insurance is indispensable. Securing your loved ones financially in case of an untimely demise is crucial. Term insurance offers this protection at an affordable rate.
Term Insurance vs. Insurance + Investment Plans
Term insurance is a straightforward efficient type of life insurance. Unlike other policies that merge investment opportunities with life coverage, term insurance focuses solely on offering financial protection. Insurance + Investment plans like endowments, traditional policies don’t beat inflation and offer low returns (whether private insurers or LIC). Opting for term life insurance with mutual funds proves to be a more advantageous choice.
For example, a healthy individual in their 30s can obtain `1 crore coverage for as little as `15,000-`20,000 annually. This makes term insurance one of the most affordable solutions to safeguard your family's financial future.
Do You Need Term Insurance?
Consider term insurance if:
You have dependents (spouse or parents).
You want to secure your children’s education or lifestyle.
You have outstanding loans (home, car, or personal loans).
How Much Term Insurance Do You Need?
To determine the right amount of coverage, you should:
Step 1 - Consider family expenses: First, assess your family’s current annual expenses. Let’s say your family spends `10 lakhs annually. If your goal is to provide for them for the next 15 years, you would need a minimum of `1.50 crore just to cover these basic living expenses.
Step 2 - Account for loans: Next, factor in any outstanding debts. Many families are burdened with home loans, car loans, or personal loans. Without term insurance, your family would be left to handle these repayments. If you have a home loan of `35 lakhs and a personal loan of `5 lakhs, you should add `40 lakhs to your required coverage. So, your total amount is now `1.90 crore.
Step 3 - Secure future of children: Whether it’s college or overseas education, these costs can be high. More children, higher the cost. For example, if you estimate that your children’s education will cost `50 lakhs, you would add this to your coverage needs. At this stage (continuing above example), you’re looking at `2.40 crore.
Step 4 - Consider your dependents: If your spouse or parents are financially dependent on you, it’s essential to include their living expenses. Estimating this can vary depending on how long they might need financial support. If you feel that in your absence you would want to leave them (parents and spouse) with `20 lakhs, you should now be looking at around `2.60 crore in total coverage.
Step 5 - Adjust for Inflation: Finally, inflation will erode the value of money over time. To ensure your family has enough to cover rising costs, it’s wise to add an inflation buffer at each of the above steps (as necessary).
Conclusion
Life is unpredictable, but your family’s financial future doesn’t have to be. Whether it's paying off loans, covering living expenses, or securing your children’s education, term insurance offers peace of mind and security for your loved ones when you’re not around.
(The writer is a Chartered Accountant and CFA (USA). Financial Advisor. Views personal.)
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