What Is The Appropriate Amount Of Term Insurance Coverage?
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While deciding the cover of the term insurance, it is important to understand that the objective of the insurance is to provide financial support to your family and your dependants, in case you are no more or unable to earn because of a permanent disability or illness. The term cover you decide on should be adequate to help your family maintain the standard of living you would have provided for them always.
To do this and secure the future of your family you will need to make a smart and well informed decision today. Start by identifying your financial goals and then estimate the cover you will need to meet those goals.
How Much Term Insurance Cover Do I Need?
Deciding how much insurance cover you need to buy is not actually that tedious process. It's just a matter of keeping the following factors in mind:
1. Annual income
The first major factor to consider in the process of deciding your term insurance is your current annual income. While '10 times the annual income' used to be the thumb rule to decide the term cover, high inflation and the rising costs of living now warrant that you opt for at least 20 times your annual income.
2. Current And Future Liabilities
Your financial liabilities like outstanding loans and debts are another major factor to consider before choosing the sum assured of your term insurance plan. In case you die early, your family may have a hard time managing EMIs along with household expenses especially if you were the sole earner. Thus, always ensure the coverage is large enough to meet all your existing liabilities.
3. Assessing Final Goals
Your financial goals play a major role in deciding your coverage. The whole point of insurance is to help your family maintain the lifestyle you provided for them, in case of your early passing. That includes meeting financial goals like your children's education and marriage, both of which require a considerable amount of money. Your term cover must, therefore, factor in these liabilities that you are likely to face in the future while keeping inflation in mind.
4. Your Age At The Time Of Buying The Policy
The age at which you are buying your policy is also pretty important because different life stages have different requirements. That also makes reviewing a term insurance policy periodically, quite necessary.
Conclusion
There are a variety of types available, from guaranteed-to-pay-out whole life policies to cheaper, temporary term life policies. But, term Insurance isn't one-size-fits-all. While an average amount can give you an idea of what you'll pay, there are many factors that go into term insurance on top of the type of coverage, like age, where you live, and other personal factors.
Also read- Is it Possible to Have Multiple Life Insurance Policies?
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