For some quite reason, the figure of Rs. 2 crore term insurance policy has become fairly famous, since it appears everywhere, whether in newspapers or on social media. It is so commonly used that individuals have begun to associate term insurance with this eight-digit value since they are mentally comfortable with it. Its appeal stems from the fact that it provides ample coverage to the insured without breaking the bank. But is Rs. 2 crore term insurance really enough? Will this amount be sufficient to meet your family’s requirements in your absence? Read on to discover out.
First thing first, what Should be your term insurance cover?
Many people recommend that you should get term insurance for 15 to 20 times your yearly pay, known as the “basic thumb rule,” but this is not a one-size-fits-all solution. The threshold could be Rs. 50 lakhs, Rs. 1 crore, Rs. 2 crore, etc. It varies from individual to person, based on earnings, dependents, and long-term financial aspirations.
To make life easier for you, here is the simple method for calculating the term insurance amount:
Term Insurance Coverage Amount = [Family’s Lifelong Expenses (annual expenses factoring inflation till your retirement age) + Expenses for Future Goals + Loans/Debts] – Savings
When calculating the amount of term insurance coverage, you must consider your family’s financial needs, which will expand over time.
Assume your current household expenses are Rs. 60,000 per month in 2019. Even a hypothetical 8% inflation will raise that figure to Rs. 80,000 per month in five years. In ten years, monthly family spending will exceed one lakh. When purchasing a term insurance plan, you must consider the increase in living expenditures as well.
You should also consider your existing loans, the number of years your dependents will require a monthly income and any other large expenses you have planned for the future, such as your child’s higher education or marriage. Then you deduct your savings from the total amount to get your life insurance coverage amount. To know the premium that you will be paying for the chosen sum assured, use the term insurance calculator beforehand.
What Are the Advantages of Buying a 2 Crore Term Plan?
Here are the advantages of buying a 2 crore term insurance plan:
You get the sum assured that is adjusted for Inflation: A 2 crore term insurance plan offers the advantage of outperforming inflation. Inflation is defined as the constant increase in the prices of goods, services, and other commodities. The inflation rate fluctuates between sectors, although the average rate is between 6% and 8%. So your current income will not be sufficient to support your loved ones ten to twenty years from now and by then, a term plan with a 2 crore term insurance payout will cost far more than you are paying for it now.
Comes with affordable premiums: Term plans are already among the most economical insurance options available if compared to the rest of the plans available in the market. A 2 crore term insurance plan sum assured might seem like a sum assured that is unattainable but if you calculate the premium payable using the term insurance calculator, you will realize it is affordable. Furthermore, if you get a term plan when you are young, the premiums are considerably lower. One of the primary reasons investors select term plans is the higher sum assured paid in exchange for low premium rates. That way, you and your loved ones can have the security they need without breaking the bank.
One gets Financial assistance for both the income-earner and homemaker spouse: Term plans are not only available to families with a single or dual income. You can also obtain them on behalf of the homemaker spouse. While income providers provide the bread for the table, homemakers ensure that the table and everything behind it function well. Traditional home services such as childcare, cooking, cleaning, and other household chores are now expensive, despite the fact that the homemaker performs them for free. However, in their absence, you may require a term plan to recruit help for their responsibilities.
Will be able to do the payment for pending loans or debt via a term plan: If one buys the 2 crore term insurance plan, the death benefit of this amount will allow your family to repay overdue loans or debts, if any. Instead of relying on your savings and investments, you can use the sum assured amount to pay your payments on a regular basis. With this large sum, one doesn’t need to compromise their aspirations by foregoing expenditures such as a car or a desired home, as well as important experiences such as higher education or marriage.
The Rs. 2 crore term insurance plan amount should not be used as a benchmark figure.
There is no reason to believe this number. It might be sufficient in one person’s case but not in another. You can only reach a decision after considering your future commitments to your family members. What if your home loan and other big expenses, such as your children’s schooling, marriage, and partner’s retirement, exceed this amount? In such a situation, the alleged ‘benchmark figure’ will likewise fall short. A home loan, marriage, childbirth, and other events may increase your liabilities and as your financial responsibilities increase, it becomes important to review your term insurance coverage every 4 to 5 years. This ensures that your term insurance coverage is sufficient to satisfy your family’s needs in the future, even if you are not present.
Bottom-line
So, if you are considering acquiring a term insurance plan and are thinking how much is suitable for you then do not fret. Just utilize the simple calculation using the term insurance calculator that we described above and choose an appropriate term insurance plan that can fulfill your family’s future demands instead of blindly going with the Rs. 2 Crore number.
