Uncertainties in life see no age, gender, marital status or income level. Unfortunate events can occur at any time, leaving you and your family to struggle in the absence of a solid financial plan. The most critical component of a comprehensive financial plan is a term insurance policy.
 

Term life insurance plans are one of the simplest and also the most affordable types of life insurance. That is why these plans are ideal for everyone who cares for their family and wants to financially secure them in their absence. However, when buying a term plan, it is critical to take into account several important parameters. The most significant is the coverage size of your insurance policy. Buying a cover that does not meet your requirements will defeat the entire purpose of a term policy.

How many years of term insurance coverage do you need?
 

These vital factors below can help you decide the coverage size of your term insurance plans:
 

1. Present financial status: 

   
   Your current financial status in terms of income and expenses is the prime component in determining the size of your term plan. The objective is to select a term plan size that is affordable and does not financially drain you. For this purpose, you must understand your current income level and the expenses you incur.
    

   Moreover, how much would you need to maintain the existing standard of life? Ideally, you would need a policy sum that is large enough to replace your income, fulfil expenses, and also sustain the lifestyle. Also, the figure must factor in inflation to a considerable extent.
    

   As per experts, the thumb rule is to get an insurance cover up to 8-10 times the annual income. However, given the rising cost of living in India, some experts advise a cover of up to 18-20 times the annual income. But it is essential to consider the age of the policyholder here as well to ensure correct term insurance coverage based on not only the financial requirements, inflation and liabilities but also the policyholder’s age. The next point explains how.
    

2. Age at the time of purchase:

   
   Your age at the time of buying a term plan influences your coverage size. The older you are, more are the chances of an eventuality. And simultaneously, you would require more coverage in sum assured. Also, generally with age, the health deteriorates, increasing risk further.

   Hence, when deciding a term plan coverage focus on your age. Also, different life stages, like marriage, divorce, childbirth, retirement, etc., have different requirements. Below is a table that gives a fair idea of the coverage size as per age bar:
    

 

Age	Term Plan Coverage Amount
Between 25 and 35 years	20 times the current income + outstanding financial liabilities
Between 36 and 45 years	15 times the current income + outstanding financial liabilities
Between 46 and 55 years	10 times the current income + outstanding financial liabilities





3. Current and future financial liabilities: 

   
   Your outstanding or expected major financial liabilities are one critical factor to consider when deciding your term plan coverage. For this purpose, you must list down your existing outstanding loans, debts, mortgages, credit card dues, etc., and then include any future liabilities like the marriage of a child, buying a home, etc.
   
   

   Once you know the dues, assess if how much of your current assets, including liquid or near-liquid ones, can help to pay off these liabilities. You should take into account your cash deposits, bank account balances, stocks, mutual funds, properties, etc. Assess the difference in liabilities and assets, and ensure you buy a term plan with at least that much in sum coverage.
    

   This is critically important if you are the sole breadwinner of the family because, after your death, the family could be severely burdened with liabilities, in the absence of a term plan.
    

4. Financial objectives:

   
   Your short-term and long-term financial objectives majorly impact your term plan coverage size. Usually, everyone has some specific financial goals, which they aim to achieve over a due course of time. These generally revolve around the financial duties and security of the loved ones. These include buying a house, children’s education, investing in a new business for the child, marriage of a child, etc. So, the higher your short-term and long-term financial objectives, the greater should be your term plan coverage. 
   

 

5. Tenure of your policy: 

   
   A vital thought that must influence your decision of sum coverage is what happens if you outlive your term life insurance? The tenure of your term plan or the time for which you want to be covered greatly impacts your term life insurance coverage. You must assess the number of years for which you need term insurance coverage and accordingly choose coverage.
   
   

   When you are young, you have your whole life ahead of you and a lot of financial responsibilities. In this case, you must go for the maximum sum coverage available because you do not want to outlive your term life savings. Such as, if you are 30 years old and wish to retire at the age of 65, you should get a term plan that is at least 35 years long. Overall, when you ask how many years of term insurance do I need? The answer is simple; the longer your tenure is the better your coverage. 
   
    

L&C/Advt/2023/Feb/0649