How Much Term Insurance Cover Do I Need?

A term insurance policy is an agreement between the policyholder and the insurer to provide predetermined financial coverage, known as the sum assured or the life cover, to the nominee mentioned in the policy, should the life insured is not around anymore while the policy is still active, i.e. within the policy term. This sum assured or the life cover is called as the term insurance cover. Your family receives a lump sum (or in parts), which is the term insurance cover, to handle the living costs, debt payments, and upcoming financial requirements in your absence.

Term insurance stays focused on protection without adding savings or investments, keeping the premium costs lower. The ideal term plan cover is one that comes close to the amount that will help your family maintain their lifestyle and money goals without your income supporting them. Now, as we all know, coming to that one magic figure is not that easy, therefore, the best approach should be something that is more than the estimated requirement for your family’s expenses.

When you are considering the ideal term plan cover or trying to decode how much term insurance cover I need, you must be careful about assessing your financial situation, future goals, and the needs of your dependents. Go through the following pointers to determine the right term insurance cover for you:

Term insurance cover, as the name suggests, provides financial security to your family with a payout of the life cover amount in the case of your death while the term insurance plan is in effect. To make sure that this life cover payout is enough to cover daily expenses, debt-related payments and future large expenses like children’s higher educational, marriage,etc., it is suggested that the life cover amount is at least 15 times your current annual income.

So, by this rule, if your annual salary is Rs 10 lakhs, your term insurance cover should not be less than Rs 1.5 crores (10 lakhs x 15). Nowadays, a term insurance cover of Rs 1.5 crores comes at affordable premium rates and if you are a healthy individual who is buying purchasing a term plan early in life, typically before the age of 30 years.

In addition to this, the premiums you pay towards your term insurance are eligible for tax deductions of up to Rs 1.5 lakh per year u/s 80C of the Income Tax Act, 1961. Also, the term insurance payout (life cover) that your family receives will also be exempt from tax u/s 10(10D).

Securing appropriate term insurance represents a fundamental step toward family financial protection. Thorough review of earnings, obligations, upcoming expenses, and existing resources determines sufficient coverage for family security. However, before you go ahead and purchase for yourself a term insurance plan, it is very important to consider these three factors: