Picking the ideal term insurance plan is essential to securing your family’s financial future. However, determining the right level of coverage can be confusing. Here we will cover the term insurance coverage to protect your valued ones. Learn what term insurance is, why it’s important, and how to calculate the right coverage for your family’s needs. 

Read on to discover different methods to estimate your term insurance needs, factors impacting the coverage amount, and tips for getting adequate coverage. 

What is Term Insurance?

Term insurance is a life insurance policy that provides financial security to your dependents in case of your untimely demise. It pays out a predetermined sum assured to your family if you pass away during the policy tenure. Premiums under term plans are affordable as you only pay for life coverage.

Term insurance is an income replacement tool if the earning member is no longer around. It offers protection for a specified duration or “term”. If you outlive this term, the policy expires without value. However, some policies offer a return of premium features.

Why Term Insurance Plan?

Term insurance plans are economical and offer more coverage per premium dollar than other types of life insurance, making them valuable for income replacement. As term policies provide pure protection, they help secure your family’s future at reasonable costs.

Determine Your Coverage Needs

Your term insurance coverage amount should be enough to maintain your current lifestyle for your dependents. Identifying an appropriate sum assured involves calculating your family’s living expenses and financial goals.

Here are some easy ways to estimate the term insurance you need:

Human Life Value Approach

With this method, first tally your family’s annual costs, including:

• Housing expenses like rent/EMI
• Bills and utilities
• Daily household expenses  
• Education costs
• Outstanding debts
• Other expenses

Next, factor in long-term monetary goals such as:

• Children’s higher education 
• Marriage expenses
• Retirement planning
• Medical treatments
• Inheritance planning

Add up these annual costs and multiply the total by the years your family would need support if you were not around. 

For instance, if your annual family expenses total ₹15 lakhs, and you estimate they would need 25 years of income replacement after your demise, your term insurance coverage would be ₹15 lakhs x 25 = ₹3.75 crores.

Income Replacement Approach

With this method, first, calculate your current annual income. Next, factor in the number of years your income would be required to maintain your family’s current standard of living if you were not around. 

Finally, multiply the annual income by the number of years to arrive at the required coverage amount.

For example, if your annual income is ₹30 lakhs, and your dependents would need it for 20 years after you, the required coverage would be ₹30 lakhs x 20 years = ₹6 crores.

Rule of Thumb

As per the thumb rule, your term insurance coverage should be:

• 10 – 15 times your annual income if you are the sole earning member 
• 8 – 12 times your annual income for dual-income households

So, if your annual income is ₹10 lakhs and you are the sole breadwinner, your coverage should be between ₹1 and 1.5 crores as per this method.

Factors Impacting the Coverage Amount

When determining the optimum coverage, consider factors like:

• Your age and health: The younger and fitter you are, the lower your premiums and higher coverage options.
• Number of dependents: The more family members financially dependent on you, the higher the required coverage.
• Outstanding liabilities: Include any loans and financial obligations that would burden your family.
• Inflation: Consider inflation to ensure long-term adequate coverage.
• Savings and investments: Include existing family assets and savings that could supplement income.

Getting Adequate Coverage 

Many people need to pay more attention to the amount of term insurance they need due to a lack of proper assessment. An insufficient sum assured will only allow your dependents to maintain their lifestyle. 

The repercussions of inadequate coverage include:

• Financial instability and hardship for the family
• Cutting down on necessities 
• Liquidating assets for survival
• Compromising children’s future  

Review and Upgrade

Re-evaluate your term insurance needs upon life milestones like:

• Marriage
• New family member
• Career growth  
• Major purchase 

Reviews cover adequacy in light of changing income, expenses, dependents, debts, etc. Boost your sum assured accordingly via policy upgrades so your family always gets 360-degree protection.

Customising Your Term Plan

While the death benefit is the core element, custom inclusions like riders enhance your term plan:

• Accidental death benefit: Extra payout if death is accidental 
• Critical illness rider: Coverage on diagnosis of specified illnesses
• Permanent disability rider: financial support if disabled per policy terms
• Waiver of premium: Waives future premiums upon disability  

Choose suitable riders based on affordability and needs for comprehensive coverage. Use online calculators to determine ideal coverage and compare premium rates across insurers on aggregator websites before finalising a term insurance plan.

Conclusion

Adequate term insurance is crucial to protect your family’s financial stability. Regularly review and adjust your coverage to match life changes, ensuring comprehensive protection. Customise your plan with suitable riders for extra security. By following these steps, you can provide your valued ones peace of mind and financial security.

Contact PNB MetLife to learn more about term insurance.