Buying a term insurance plan might be one of the wisest decisions you can take to ensure the financial stability of your family in case of your absence. It is the simplest and most effective form of life insurance
The buyer buys a term insurance plan for a chosen tenure (like say 30 years). Now if the premiums are being paid regularly, then if the insured person dies between today and the 30th year, the insurance company will pay the sum assured to the nominee. If the person does not die during the tenure of the policy, nothing will be paid to either the insured person or the nominee.
There are multiple benefits of buying a term insurance plan. Also, some policies provide critical illness care. However, finding out the best plan for you and calculating the cost of the premiums can be a tough job.
Many randomly just pick a round figure like Rs 1 crore and buy a term cover for the same. Rs 1 crore is not a small amount. But it may not be enough and the right amount for everyone.
One way to find out the right cover is to answer the following questions:
- How much do you need to close all outstanding loans?
- How much do you need for at least a basic house purchase (if not owned already)?
- How much do you need for children’s education?
- How much does your family need for regular day-to-day expenses for the next 20+ years?
- How much do you need to for your spouse’s old age requirements in decades to come?
- How much do you need as a medical contingency buffer for your family?
If you total the amounts in the above points and reduce your existing life coverage and existing investments from the calculated amount, you will get the additional life insurance cover that you need to purchase soon.
Another option is to simply use a term insurance calculator.
What is a term insurance calculator – To get the sum assured from the insurer, you need to pay premium costs over a certain period. A term insurance calculator will help you calculate the cost of the premiums that you are required to pay to avail the benefits of a term insurance plan. A calculator is a simple tool that can also be used to compare multiple companies and help you choose a plan that fits your needs.
How does a term insurance calculator work?
A term insurance calculator will ask you to enter some details so that it can provide an approximate value of the premium costs that you will have to pay for the plan you choose. Some details that a term insurance calculator might ask you for are – age, gender, children, marital status, annual income, smoking habits, desired coverage amount, tenure, etc.
After filling out the details, a term insurance calculator will provide you with multiple options of policies across different insurers or plan varieties.
Benefits of a term insurance calculator
Calculators allow you to determine what is the right insurance coverage for you and the insurance premium you need to pay for the given sum assured. Once the calculator throws up the figure, you can then change the sum assured or the premium you can afford and see the best plan. If a sum assured has been determined by you, enter the sum assured and the other personal details along with the term. You will know the premium. Alternatively, input the premium you wish to pay along with the term and personal details and the calculator will tell you how much sum assured you would get.
And is there only one option to receive the payout from term insurance?
No. These days, insurance companies allow you to choose how the money is paid out to the nominee in case of your death. Suppose you take a term plan of Rs 2 crore. Now the money can be paid out as any of the following (depending on what you have chosen):
- Full Rs 2 crore paid at the time of death
- Rs 20 lakh paid at the time of death. Remaining 90% (i.e. Rs 1.8 Cr) paid out equally as Rs 50,000 monthly (0.5% of sum assured) for next 30 years
- Full Rs 2 crore paid at the time of death. Additionally, Rs 50,000 paid monthly for the next 30 years
- Full Rs 2 crore paid at the time of death. Additionally, starting with Rs 50,000 monthly and increasing by 10% every year paid out for the next 30 years
The premiums charged in each option would be different.
Related Reading – FAQs on Term Insurance
That’s it. Compared to other traditional insurance options like endowment, moneyback, etc. it’s very clear that the term insurance is still the best insurance that you should be buying for covering your life.
And if you don’t know the right cover amount to buy, you can use a term insurance calculator to choose the right one.