Term insurance plans are intended to provide your family with the most comprehensive financial protection in the event of your untimely passing. Therefore, the benefit level of your term plan should correspond to the money that you will put into providing for your family.

What will your family need while you are away?

• Kitchen and home costs each month
• Money to cover the costs of the children’s higher education and marriage
• A fund for your spouse’s post-retirement lifestyle

Monthly costs for living

The family’s monthly household expenses should be taken into consideration first to understand the true meaning of term insurance. Term insurance ought to provide the family with a monthly income or with enough cash to enable them to meet their monthly living expenses.

Savings for children’s education & retirement

In our scenario, the monthly household expense already includes the spouse’s post-retirement expenses. That’s because we assumed the household would always be running. In actuality, the majority will likely come to an end in 20 to 30 years.

For instance, the cost of further education at prestigious domestic colleges might range from Rs. 10 lakh to Rs. 15 lakh. To this, add a similar amount for the wedding, and you have an additional 25–30 lakhs. Simply double it by two to get Rs. 50–60 lakh if you have two children.

 

Typical costs & assets explained:

The majority of the assets and costs are understandable and acceptable to you. However, the following are more complicated than they appear on the surface. In order to comprehend the meaning of term insurance and the costs involved, read the following:

• Costs of home renovation: If you live in your own home with your family, it is likely that the property will require a significant renovation within the next 10 to 15 years.

• Other financial objectives: Any objectives that matter to your family now or in the future should be taken into consideration. For instance, a visit to a particular nation or culture. an enterprise or endeavour in business. It’s always a good idea to keep these goals in mind.

• Credit cards: You should think about adding your credit card limits to your insurance coverage. The explanation is straightforward: In the event of your untimely passing away, your family would require quick financial support, which credit cards may provide with ease. However, every dollar spent will create a debt that the claim amount can then pay down.

• 50% on equity & gold investments: You may take 50% of the value of these investments, even though it is best to ignore them when calculating your term cover benefit. The straightforward explanation is their illiquidity; while they can appear promising at the moment, you never know where they’ll be when it comes time to file a claim.

• Why not consider real estate: For two reasons, real estate is not taken into account here:
• Cash conversion is complex.
• It can enable your dependents to earn more money.

What are you currently worth financially?

Let’s extend our example by supposing that your total current assets, including those that can be quickly converted to cash, total Rs. 15 lakhs.

Your overall need for life insurance is in the range of 1.5 crore rupees (15 lakh assets minus 1 lakh household plus 60 lakh for children). For the entire time you live with your family, this is about what you will contribute to their lives.

 

How does the calculator for term insurance work?

Calculators for term insurance operate on an approximation basis. The usual rule of thumb in the insurance sector is: It takes 10 to 20 times an individual’s annual take-home pay to cover the dependent’s bills. Because of this, the majority of term insurance calculators just need your present age and annual income. The annual salary of our hero, like in our example, could range from Rs. 12 to Rs. 15 lakh.

The best term insurance plan to buy

The greatest term insurance plans for your family can be determined once you have determined your financial worth by looking at the other features and perks. A few of these characteristics, including regular income payout following the claim, were covered earlier:

• Premium payment mode: If you are employed, the monthly payment option is the most practical. You can choose to have your account automatically deducted for the minimal premium.

• Whole life coverage: A whole life term plan can make it possible for you to use your term insurance to assure an estate for your children or grandkids.

• Possibility of increasing coverage: If you purchased term insurance in the beginning, you should anticipate that as your family and your duties expand, so should your term insurance. If you choose a long-term cover, the limited pay option can make sure you won’t have to continue paying premiums after you retire.

To purchase the necessary amount of life insurance for your family, calculate your financial worth using the term insurance calculator.