The most important aspect of a term insurance policy is the sum assured you are promised with the plan. While deciding this amount you need to factor in a number of aspects like unaccomplished financial goals, home loan, lifestyle of your family, current cash flows etc. Mostly, agents ask you to go by the rule of the thumb i.e. 7-15 times of your current take home salary. However, this is a vague figure that you opt for not knowing if it is enough to meet the financial requirements of your dependents in your absence.
Sum assured in a term insurance plan is the minimum amount paid to the nominees of the policy in case the policy holder dies. This amount helps your family to cope with the various expenses they’ll come across in course of life. While calculating the sum assured you need to count in factors like the total value of fixed assets you have, your current take home salary, your current investments, number of dependents and your age, future income expectations and current liabilities. Factor in inflation as well.
Also, at different stages of life you should keep reviewing your requirements and asses if the sum assured for term insurance is enough or not. As your responsibilities increase it is sensible to increase cover to ensure your loved ones are financially stable even after you. You may feel the need to increase the amount at certain stages like –
Marriage, as we know starts a new journey in life. Your responsibilities when unmarried are comparatively less as when you get married. So there is a strong need to increase security to life. In case, of your untimely death, your spouse may have to face adverse conditions due to lack of funds. So increasing the sum assured at such a time makes sense.
Taking a home loan –
This is an important time you need to consider to increase the sum assured promised on your term insurance. This is a major liability and can become difficult for your family to handle in case of your untimely death. Usually a home loan lasts for around 15 to 20 years. Your unfortunate death around this time can put your family in a fix. It can be all the more difficult for your spouse in case you have children to take care of. The sum assured on your term insurance could then be used to repay the loan and secure a shelter for your family.
Planning a baby –
In case you are planning a baby, then your responsibilities are going to increase. In case of your sudden demise in these crucial years, it can get difficult for your spouse to handle the many expenses that will come along. Hence, increasing your term insurance sum assured around the time you plan a baby is important.
Understanding the sum assured for your term insurance plan