Key purpose of term insurance is to provide financial security to a policyholder’s family in case of his untimely demise. Let’s see if Rs 1 crore cover is enough.
Many insurers have set Rs 1 crore term plan as a benchmark. But it may not be enough. Here’s a step-by-step guide to determine how much cover you need.
Multiply your annual household expenses by 15. It gives you a basic sum that factors in inflation, children, working spouse and corpus invested in FD or balanced fund.
If your annual household expense is Rs 10 lakh, 15X would be Rs 1.5 crore. Now add your liabilities like home loan etc. Say, post addition the number is Rs 2 crore.
Let’s say there are Rs 40 lakh worth of life goals which include your child’s education. This takes your coverage to Rs 2.4 crore.
If you have liquid assets like money in savings accounts, mutual funds, FDs, etc. worth Rs 20 lakh, post deduction the number comes down to Rs 2.2 crore.
This calculation is just an example. How much term cover you need will depend on multiple factors like age, marital status, goals etc.