by Term life insurance plans are one of the best financial securities that you can make for your family. Taking care of your family’s future is one of the most important responsibilities in life. Parents strive to give the best possible life to their children, from securing their future educational needs to giving them a comfortable living. However, with the unpredictability of life, there may come a point in time when you are not there to ensure your family’s financial stability. The burden of mortgages, educational dues, and outstanding debts can take a heavy toll on your loved ones.
A term life insurance plan serves as the best protection for an individual’s family from financial insecurity after the breadwinner’s demise.
What Is a Term Life Insurance Plan?
A term life insurance plan is the most basic and purest form of a life insurance policy. It is a life cover plan that offers a big sum of money upon death with reasonably low premiums.
While choosing a term plan, there are two things to consider:
- Policy Term: It is the duration of the cover, for which one pays the premium every year. The duration varies from 20 years to 40 years.
- Sum Assured: The amount of money one wishes to secure for the family in case of an untimely death.
The sum assured can either be claimed to pay off the debts or as a corpus to meet the future financial needs of the family. A person availing of the plan has to pay the premium on a monthly or an annual basis. In case of an unfortunate incident occurring within the policy term, the nominee receives the sum assured. If the insured outlives the policy, nothing is claimed.
Since a term plan has no additional investment component, the premium is low and affordable.
Why Buying a Term Plan Is Essential for Every Indian Household
In Indian households, majorly everyone prefers to save or invest in traditional avenues like gold or bank FDs. However, these savings might not suffice for an individual’s entire family’s financial needs if the breadwinner dies.
High Protection at an Affordable Premium
A term plan provides a good amount of sum assured at an unbelievably low premium. For example, a young adult in their late 20s can cover a huge sum of one crore for a monthly premium, which is less than what a family would spend on a meal or movie outing in a weekend.
Saving the Family from Outstanding Loans or EMIs
Most Indian households take big loans to purchase a home or a vehicle and/or to fulfil future educational needs. However, in case of an unexpected incident such as death, the family has to adjust their standard of living to manage the existing debts. However, with a term plan, all the family’s outstanding loans and EMIs can be easily covered.
Replacement for the Lost Monthly Income
The breadwinner contributes to most of the family’s expenses, from utility bills to groceries and school fees. With the income from a term plan, an individual can ensure that his/her family’s lifestyle does not change and everything keeps running smoothly.
Tax Advantages
Tax benefits may be available on eligible term insurance premiums under Section 123 read with Schedule XV of the Income-tax Act, 2025, subject to the prescribed conditions and the ₹1.5 lakh overall limit for specified payments. The deduction does not apply under the concessional tax regime governed by Section 202. Eligible death benefits may also qualify for tax exemption under Schedule II, subject to applicable conditions and exclusions.
How Much Life Insurance Cover Is Enough?
A lot of people often make the mistake of just randomly choosing an amount of sum assured without doing a thorough calculation. Getting an inadequate sum assured does not offer sufficient coverage to the family, whereas overestimating the amount can adversely affect the monthly budget.
As per personal finance principles, one should get a life cover of 10x or 15x of his/her annual income. So, if someone’s annual income is around Rs. 8 lakh, he/she should get a life insurance policy of at least Rs. 80 lakh to Rs. 1 crore.
However, there are a few things to consider before finalizing the sum assured:
- Living Expenses: It is important to calculate how much money the family needs to meet the regular expenses.
- Outstanding Debts: It is essential to consider how much one owes to various creditors.
- Future Goals: One must also consider the money needed to fulfil future financial needs like the children’s higher education and marriage.
- Current Holdings and/or Savings: It is also important to consider the existing liquid assets, which might be claimed to settle debts or meet expenses in case of an unforeseen event.
Use a Term Insurance Calculator to Know the Required Cover
Making all the calculations for future goals, existing liabilities, and inflation is a tedious task. This is why there is a free tool available online, called the term insurance calculator. It is a one-stop solution for calculating the life cover required to secure the family’s future.
Why Should You Use an Online Calculator?
- Time-Saving: It saves a lot of time and effort for making tedious calculations.
- Accurate: An online calculator provides accurate figures rather than making mere estimations.
- Easy Budget Planning: It shows the exact amount that one needs to pay as a premium for the desired sum assured, which makes the process of choosing what fits better within the budget easy.
- Adjust Policy Term and Cover Easily: One can easily play around with different policy terms and sum assured in order to arrive at the most affordable plan.
A Step-by-Step Guide on Using an Online Term Plan Calculator
An online term plan calculator is quite easy to use and can be mastered by anyone in a short time.
Step 1: Enter Your Personal Details
In order to start with using an online term plan calculator, one needs to enter some basic personal details. The details might vary from one website to another. However, almost all calculators require the following information:
- Age
- Gender
- Occupation
- Annual Income
Whether the applicant is a smoker or not
An individual’s age and occupation have an immediate impact on the premium. Similarly, an applicant’s health is another deciding factor for determining the premium, which is why smokers or tobacco users tend to pay higher premiums.
Step 2: Enter Your Financial Goals and Liabilities
After entering the personal details, an individual needs to enter the financial liabilities, as well as future goals. Enter the amount of existing debts, like personal loans, home loans, etc.
In addition to that, enter the amount of money needed to meet the future financial needs, like children’s higher education.
Step 3: Check the Results
After entering the necessary information, the term plan calculator generates a result. It shows the exact amount of sum assured one should choose and the amount that would need to be paid as the premium. One can then play around with the sum assured and the policy term until the most affordable option is arrived at.
What to Remember Before Buying a Term Life Insurance Plan?
Once the desired sum assured is chosen with the help of an online calculator, there are a few more things to remember before actually purchasing the plan.
Buy Early
As one ages, the premium increases because of increased health risks. Therefore, it is always better to buy early when the premium rates are the lowest.
Disclose Information Accurately
It is paramount to disclose accurate information while filling out the application form. Being dishonest can create problems later on while claiming the sum assured.
Check the Claim Settlement Ratio
Before purchasing a term plan, it is essential to check the claim settlement ratio of the respective insurance company, which basically shows the number of claims that have been settled successfully. Choosing an insurance company with a higher claim settlement ratio makes the process of claiming easier.
Add Riders, If Any
A rider is an additional feature that can be added to a term life insurance plan upon paying an extra premium. Some of the most common riders include the critical illness rider, accidental disability rider, etc. These riders provide additional benefits to the nominee in case of an unfortunate incident.
Securing Your Family’s Future with a Term Life Insurance Plan
Life insurance plans secure your family’s financial future and offer them peace of mind. A term life insurance plan, in particular, is ideal for those looking to get high coverage for an affordable premium. It provides financial protection to loved ones against all sorts of adversities, whether it is covering existing debts or fulfilling future financial needs. With the help of an online term plan calculator, one can easily determine the sum assured that would help in achieving financial freedom for the family.
