What is the Right Amount for a Life Insurance Cover?

If you are above your late 20s, you must have heard about life insurance. Life insurance ensures the financial security of the sole or co-income earner’s family in case of their unfortunate demise or an unforeseen event. That is why life insurance plans form a core part of financial planning. While there are several types of life insurance you need to understand what is the right amount for life insurance cover. 

 

Which life insurance policy is best?

The best life insurance in India depends on your specific needs, such as the life insurance coverage amount, premiums, and the type of plan you require. Several companies consistently maintain key metrics like claim settlement ratio* and solvency ratio, which are crucial indicators of reliability. Life insurance serves as essential protection in uncertain times through a legal agreement between you and an insurer. You pay regular premiums, and the insurer pays a sum at maturity or to your loved ones upon your death.

 

Which is better - term life or whole life insurance?

 

A term plan can give you high insurance cover at low premium prices; it does not offer any benefits in case you survive the term policy. That means you will not receive the sum assured if you survive up to the policy end date. However, some plans pay back the premiums paid up to the expiry date, so you don’t lose out on your original invested amount.

 

On the contrary, whole life insurance plans give you:

• A death benefit (that is the guaranteed¹ sum assured under the policy)
• A surrender benefit (that is, an amount you receive in case you cancel the policy)       
• A maturity benefit (in case you survive the tenure of the policy) 

Moreover, unlike a term plan, whole life insurance policies have a longer duration. You may need to pay higher premiums, but in return you’ll get more financial protection. However, depending on your preference and budget, you can choose either a term policy or a whole life policy.

 

How do I choose the right term insurance cover amount?

With a proper step-by-step process, you can easily choose the life insurance cover amount. The general rule of thumb is getting insurance cover up to 20 times your annual income for a tenure that lasts up to your retirement age, at least, or the completion of your financial responsibilities.

 

To find the right life or term insurance cover amount, you need to:

 

1. Calculate monthly or annual daily expenses

The first step in determining the amount of life insurance cover is to calculate the day-to-day expenses (such as groceries, utilities, and bill payments) of your loved ones. Suppose your income is ₹10,00,000 per year, and your family requires ₹50,000 towards monthly expenses; you need to have ₹1,20,00,000 for 20 years after your demise.

 

Formula = Annual income x 20

 

(The figure 20 is a general rule of thumb and takes into account inflation, the rising costs of healthcare, education, and fluctuating premium rates.)

 

2. Assess your financial liabilities

Your day-to-day expenses will not be the only part of your family’s lifestyle. In your absence, any pending financial liabilities, such as a home/vehicle loan, any premiums towards investments, and health care expenses of your loved ones, should also be considered.

 

Formula = Annual income x 20 + pending loan/EMI amounts + any other financial liabilities

 

3. Factor in future life goals

Apart from your daily expenses and long-term liabilities, you will also need to have finances for your family’s future life milestones, such as:

 

• A child’s education or marriage
• Parental healthcare
• Retirement fund for your spouse, and so on.

Formula = Annual income x 20 + pending loan/EMI amounts + any other financial liabilities + future life goals = First value 

 

4. Add up all your ancillary wealth

Use the formula above and add it all up. Once you get a rough value, account for any liquid assets, investment returns, savings, real estate income, or any extra earnings and minus that from the first value arrived at above.

 

 Formula = Annual income x 20 + pending loan/EMI amounts + any other financial liabilities + future life goals - ancillary wealth = Life cover amount. 

 

Get a term plan with Tata AIA’s Term Insurance Plans:

 

Getting Tata AIA term life insurance plans serves two purposes:

 

1. You get a diverse range of term insurance plans to choose from
2. You receive your money’s worth.

We offer term plan coverage for every palette (with complete transparency and no hidden loopholes in the Tata AIA Policy details). Compare our term insurance plans and offerings and choose from:

 

• Long-term coverage (up to 100 years of age)
• Flexible premium payment frequencies
• Additional riders^# for extra protection
• Choice of death benefit payout options
• Return of the premiums paid
•  50% of the sum assured on the diagnosis of a critical illness
• The option to enhance your cover amount at different life stages

 

Conclusion:

 

Choosing the right amount for life insurance cover is essential to secure your family’s financial future. Assess your income, expenses, debts, and long-term goals before deciding on the life insurance coverage amount. You can also compare term insurance plans to find one that aligns with your needs and budget. A well-chosen plan ensures financial security, flexible options, and peace of mind for you and your loved ones.