Term insurance is not just life cover; it secures your finances to keep your loved ones secure and protects against income loss in the event of your demise. Yet, it must be accompanied by a term insurance plan aligned with your plans.
Here is how to ensure your term plan aligns with your financial goals.
1. Evaluate Your Financial Obligations and Future Responsibilities
Before buying a term insurance policy, analyse your existing or future financial commitments. They are:
✔️Outstanding liabilities – personal loan, home loan, or other liabilities
✔️ Children’s Education: Projecting future education expenses.
✔️ Retirement Planning: Securing your spouse’s financial future.
✔️ Daily living and lifestyle – maintaining your family at the same standard of living you are currently giving.
As a good rule of thumb, get coverage of at least 10-15 times your annual salary to ensure you have the coverage you need.
2. Select Coverage Needed
Your sum assured should be enough to cover the needs of your family or dependents if you are gone. You can calculate your coverage using the Human Life Value (HLV) method.
📌 HLV = (Annual income – Annual expenses) × Remaining working years]
For example, if your annual income is ₹15 lakhs, expenses are ₹5 lakhs, and you have 20 years of future working capacity, the coverage should ideally be over ₹2 crore, plus any outstanding liabilities.
3. Select an Adequate Policy Term
The duration of your term insurance should align with major financial milestones:
✔️Until children become financially independent – Typically 20-25 years.
✔️Till your retirement age – Ensure financial security for your spouse.
✔️Loan tenure coverage – If you have ongoing EMIs, the term should be long enough to clear them.
A longer policy term ensures maximum protection for your dependents.
4. Add Riders for Enhanced Protection
Riders provide additional benefits beyond basic coverage. Consider:
✔️ Critical Illness Rider: Offers a lump sum payout on the diagnosis of listed critical illnesses.
✔️ Accidental Death Benefit: Provides extra payout in case of accidental demise.
The waiver of premium provision may keep the policy active even if permanent disability prevents you from paying premium costs, subject to the policy terms.
Supplementary products provide financial security by preventing money-related stress.
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5. Periodically Review and Update Your Plan
Changes in your lifestyle will always transform your financial requirements. You need to reassess your policy at least every few years, particularly during the following events:
- You should consider increasing your life cover after marriage to protect your spouse’s future.
- The sum assured amount should get readjusted to account for expected education expenses after the birth of children.
- Insurance coverage should be increased when your career advances because of increased income levels.
- Regular updates to your policy will protect your loved ones at any time.
Your term insurance policy should function as more than a regular expense because it creates financial security for your dependents. You can achieve perfect long-term financial goals through periodic policy checks, strategic coverage choices, term length, and additional riders.
Photo by Tim Mossholder on Unsplash ( Free for commercial use)
Image published on October 10, 2020
