Term Insurance 724 views February 8, 2021

Death is the brutal truth of life. It can leave our family and loved ones in a state of financial and emotional instability. If you are the sole breadwinner in your family, your untimely death can cause financial upheaval to your family. A term life insurance can help you secure your family’s financial future with a sum assured amount, in case you die and leave them. But the question that people often ask – how much sum assured is enough when choosing a term life insurance?

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A suitable sum assured amount ensures that your family can preserve the standard of living that they have always enjoyed when you were around. For choosing an adequate sum assured for your term insurance, you will need to make a well-researched and informed decision keeping a few factors in mind. In this article, we will be telling you about all such factors that can help you choose the right sum assured. So, keep reading!

Factors to Keep in Mind when Choosing a Sum Assured for a Term Life Insurance

Figuring out the right sum assured amount will depend on the financial situation you have today and what it’s likely to be years down the line. This is where you need to plan keeping in mind the inflation. Although an exact estimation of inflation can’t be ascertained, calculating the sum assured keeping an annual inflation of 4-6% will be the way forward. Let’s check out the factors without any further delay.

Your Current Annual Income and Monthly Expenses

One of the major factors to look at while choosing the suitable sum assured is your current annual income. You would find people saying that you should always choose 10 times your annual income as the sum assured. But here, you are not factoring in inflation, rising healthcare and education costs that can affect in the long run. That’s why it is necessary to go for a sum assured at least 15-20 times your annual income. Also, your monthly expenses will depend on your annual income. You wouldn’t want your family to downgrade their standard of living when you are not around.

So, if your present annual income is INR 4 lakh, it would be advisable to opt for a term life insurance plan that can provide a sum assured of at least INR 60-80 lakh to your family in case of your untimely death.

Your Current Liabilities

At some point in our lives, every one of us could opt for a loan or two. It can be a home loan, personal loan, car loan, education loan, etc. When choosing an adequate sum assured for term life insurance, your existing liabilities can play a huge role. Ask yourself if you would like to leave your family to pay loan EMIs along with managing their daily expenses in your absence. So when choosing a sum assured, consider your current liabilities. Suppose you have an outstanding home loan balance is INR 35 lakh. Then you will need to consider this amount while choosing the sum assured.

Your Current Age

People of different ages can have different requirements. This is why your current age is one of the crucial factors when choosing a sum assured for your term life insurance. For example, an individual between the ages of 20 to 30 will have fewer chances to have more liabilities compared to an individual aged around 50 and needs less protection. Have a look at the below table to get an idea about the suitable sum assured depending on your age.

AgeIdeal Sum Assured Amount
25 -35 yearsAround 20 times your current annual income + outstanding debt
36- 45 yearsAround 15 times your current annual income + outstanding debt
46 - 55 yearsAround 10 times your current annual income + outstanding debt

Your Future Life Events and Goals

Education and marriage of your children are the two most important milestones that you also need to consider when choosing the right sum assured. You wouldn’t want your children to compromise with their education in case you are around. So, keep in mind the cost of higher education and marriage when choosing a sum assured.

Existing Wealth in the form of Assets

Other than your current and future liabilities, you should also consider when finding how much sum assured will be enough for you. This factor is your existing wealth in the form of assets such as fixed deposits, National Savings Certificate (NSC), mutual fund investments, provident fund, etc. So, when you are calculating your ideal sum assured, you can deduct the overall worth of your assets from your overall sum assured requirement.

Retirement Corpus for Your Spouse

You may also want to leave a sufficient amount for your spouse so that he/she doesn’t face any trouble during his/her retirement days. When you are choosing a sum assured for your term life insurance, do remember to add this corpus.

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