If you weren’t around tomorrow, would ₹1 crore really be enough to safeguard the life you’ve worked so hard to build for your family?
If your family’s monthly expenses are over Rs 1 lakh, then a Rs 1-crore corpus might not cut it. Even if invested at 7.5% and regular monthly payouts of Rs 1 lakh, it could be exhausted in about 13 years.
Plus, would it take care of any outstanding loans, support your children’s education, help your loved ones maintain their lifestyle and provide financial security for years to come?
“While ₹1-crore term insurance continues to be a commonly referenced benchmark, its adequacy today depends largely on an individual’s income, liabilities, lifestyle, number of dependents, and long-term financial goals,” says Nilesh Parmar, Chief Operating Officer, Generali Central Life Insurance.
For instance, if you have a home loan and other loans outstanding of Rs 40 lakh, a big part of the insurance money would go towards loan repayment. It will be extremely challenging for the family to manage the existing lifestyle. How would they handle the pressure of providing quality education and achieving other life goals, like ensuring a comfortable retirement for the surviving spouse?
Many urban households today may require a significantly higher coverage than what was considered adequate a decade ago.
“In fact, what was earlier considered a ₹1-crore protection need should now be looked at closer to ₹1.5 crore or more, depending on the customer’s income, liabilities and family responsibilities,” says Shruti Oke, SVP & Head of Product Management, Tata AIA Life Insurance.
How much term insurance cover do you actually need?
While a cover of 10-20 times annual income is often used as a starting point, the final amount should be based on an individual’s financial commitments and future obligations. However, it is always better to have a bigger safety net so that it can work even with some unforeseen costs.
For instance, if your annual income is ₹10 lakh, it will be better to target Rs 1.5 crore or a higher insurance cover.
“It is recommended to also consider one’s outstanding debts, family expenses, and future financial goals before jumping into the final amount,” says Sarita Joshi – Head of Health and Life Insurance, Probus.
The right coverage amount can be estimated by considering three key aspects: replacing lost income, clearing outstanding debts, and meeting future financial obligations.
“While a broad thumb rule of 10 to 15 times annual income is commonly used, this should be refined based on individual circumstances,” says Oke.
Two individuals with similar incomes may require very different levels of protection depending on their personal circumstances, she adds.
Term insurance policy tenure: How long should your cover last?
Besides choosing the right sum assured, policyholders should also pay attention to policy tenure.
“In terms of policy tenure, it is generally advisable to remain covered until the retirement age of 60–65 years, when most major financial responsibilities are expected to have been fulfilled and retirement savings are in place,” says Varun Agarwal, Head of Term Insurance, Policybazaar.com.
Additionally, riders such as Critical Illness Cover and Waiver of Premium can strengthen the overall protection by providing financial support during unforeseen health or income-related challenges, he adds.
