Life insurance is a necessity today. It is one of the best investment instruments that can help you secure the financial aspirations of your loved ones, especially when you are not around. Term insurance can provide adequate financial cover to your family if something untoward happens to you. If you wish to have a clear understanding of the term insurance meaning, then read on.

As the name suggests, term insurance is a type of life insurance plan that gives life cover for a specific tenure at a pocket-friendly premium. The sum assured is significantly high, and it should be aligned with your monetary objectives. Therefore, it becomes essential to determine your needs. You can ascertain your insurance requirements by using a term insurance calculator.

After your absence, the financial needs of your family will include:

  • Funds to meet household expenditures, like utility bills and grocery-related expenses
  • Provision for medical costs
  • Money for your child’s educationand wedding
  • Finance to support your spouse post-retirement

What should be the sum assured for your term plan?

To calculate the sum assured, you can note down the current costs of all your milestones set for the future. For example, your financial goals may include purchasing a new house, providing top-quality education to your children, renovating your home, and building a substantial retirement corpus, among other objectives. You can add the sum of your financial goals with the total of all your liabilities and then subtract the sum of your liquid assets.

Your liabilities may include housing loan, car loan, and business loan, among others. In contrast, your liquid investment will consist of your bank balance, bank fixed deposits(FD), and investments in equities, debt funds, and pension schemes, among other instruments.

In short, you can use this formula:

The current cost of all your financial goals for the future + Total of all your liabilities – The sum of your liquid assets

How can a term policy calculator help you identify your insurance needs?

A term insurance calculator can help you find an approximate value of sum assured, as you need to input your annual earnings and age in it. The insurance industry’s fundamental rule to estimate your sum assured is to multiply your yearly income by 10 to 20 times. For example, if your annual salary is INR 10 lakh, your sum assured should be a minimum of INR 1 crore.

Buying term insurance as per your needs 

Now when you know how much sum assured you would require to meet your financial goals, you can compare the various benefits and features of different term policies, and buy the one that suits your needs. Some features you can consider while investing in a term plan include:

  • Frequency and mode of premium payment

term insurance premium is affordable, and you can pay it either monthly, quarterly, semi-annually, or annually, depending on your convenience. You can opt for Electronic Clearing Service (ECS), which will automatically deduct the premium from your bank account on a specified date.

  • Whole life term plan 

If you want to leave behind a significant sum for your spouse and kids, you can opt for a whole life term insurance policy. Such a plan will give a guaranteed income to your nominees, as it is valid until the age of 99. If you outlive the tenure of the regular term policy, you will not receive any maturity benefit.

  • Option to increase your term insurance plan cover

Your family’s financial goals and responsibilities may change with time.So, it is advisable to modify your term plan’s cover. Many insurers provide the facility for increasing the sum assured on the existing policy. This reduces the hassles of buying a new term plan.

Providing financial safety to your loved ones should be your top priority even if you are no longer around. Buy a suitable term life insurance as early as possible by estimating your insurance needs with the help of aterm insurance calculator.

By Richard