Thinking about your family's future can be quite daunting. But nothing feels better in the entire world than caring for your family and leaving behind a secure future for them despite your physical absence. That secure future is none other than the term insurance cover, and many of us talk about a 2-crore life cover. But does a 2-crore life cover suit everyone? Let's figure out everything you need to understand before purchasing term insurance here.
What is a Term Insurance Cover?
Term insurance is the most basic form of life coverage, wherein you pay a certain amount of premium to the insurer and, in return, they pay a fixed amount to your nominee if any unfortunate incident occurs during the policy tenure.
So, if you have a 2-crore term plan, your nominee will receive a payout of 2 crore upon your death. This payout from the term insurance plan will help your family to fulfil their daily expenses, pay off their education loans, home loans, and more. But is 2 crore enough to cover your family's future?
Is 2-Crore Cover Enough for Your Family?
A 2-crore cover seems too big and sufficient to meet all of your family's financial requirements today. But with time, the prices of almost everything that we buy increase due to inflation. So what costs 100 Rupees today shall cost 200 Rupees after a decade and so on. Similarly, the school fees that cost 50,000 rupees shall cost double the amount after a decade.
Therefore, in order to meet such requirements, people are eyeing a 2-crore life cover more these days.
But how do you know if a 2-Crore insurance plan is enough for your family? Well, let's see how you can calculate the exact insurance cover that can fulfil your family's future financial needs.
How to Calculate Your Insurance Cover Needs?
The calculation part seems a bit tricky and intimidating, but if you know the process well, it's not. There are a few rules of thumb that you can keep in mind while calculating how much term insurance cover you should buy.
Total Cover Needed = (15 × Yearly Income) + All Existing Loans & Debts + Future Goals – All Your Savings
So, according to this formula, the first thing that you need to calculate is 15 times your yearly income.
Multiply Your Yearly Income by 15
It is always a good idea to have at least 15 times your annual income as your term insurance cover. So, if your yearly income is 10 lakh, it is advisable to have 1.5 or 2 crore as your insurance cover. This insurance payout shall substitute your monthly salary for 15-20 years, depending on the nominee's age.
Add Your Outstanding Debts and Loans
Now, in addition to the above-mentioned figure, you need to add all of your existing debts and loans. So, if you have a home loan, a car loan, or any other personal loan, you need to calculate their total amount and add it to the previously calculated figure. A 2-crore cover should be enough to repay all of your existing debts, so your nominee can retain their primary asset (house or car).
Add Future Needs of Your Family
Moreover, in addition to the above-mentioned figures, you need to consider your family's future needs. So, for instance, if you have a child and you want to set aside some money for their higher education or marriage, you should calculate that amount and add it to the previously calculated figure.
Subtract Any Savings You Have Already Made
Lastly, you need to subtract the total amount of any existing financial assets, such as gold, mutual funds, FD, and so on. The resulting figure shall be the exact insurance cover that you need to buy. Alternatively, you can use an online term plan calculator to calculate this.
How to Use an Online Term Plan Calculator to Find the Right Cover?
Instead of using the above-mentioned method to calculate your term insurance plan, you can also use an online term plan calculator.
This free tool offered by various insurance companies allows you to calculate your life cover needs by entering just a few pieces of information, such as your age, income, smoking status, retirement age, and so on. This tool saves you the effort of calculating everything manually. It only takes about 2 minutes to calculate the amount required on your behalf.
Why Buy a 2-Crore Insurance Cover Now?
As mentioned above, buying a 2-crore insurance cover is a good move if you are young and in good health. Let's discuss why buying a term plan at a young age is a better option before moving on to the next significant point.
- Low Premiums: The premium that you pay for your term plan is significantly reduced if you purchase it at a young age. For example, a 25-year-old non-smoker can pay a much lower monthly premium for a 2-crore cover than a 40-year-old.
- Locked-in Premium Rates: When you buy a term insurance plan at a young age, your premium rates remain locked in for the long term; thus, they will never increase as you get older.
- Quick approval: Young people have fewer health risks, so they are more likely to be approved for term insurance plans without having to go through a strenuous health evaluation process.
How to Buy the Best Term Insurance Plan for 2 Crore?
There are many insurance companies, each with its own term insurance plans. While purchasing the best term insurance plan for 2 Crore, keep the following pointers in mind to choose the best term plan for 2-Crore cover.
- At least a 98% Claim Settlement Ratio: Always go for an insurance company with a claim settlement ratio of more than 98%.
- Add-on Covers: Look for additional covers such as a critical illness rider and an accidental disability rider in the plan. These riders provide an extra payout to your nominee if you suffer from an illness or disability due to an accident.
- Payout Options: You can choose between two types of payouts: the first is a lump sum payout of 2 crore to your nominee, and the second is a combination of a lump sum and monthly payout to your nominee for a certain period. The latter is an excellent option to cover your family's regular monthly expenditures.
Conclusion
Protecting your family is not necessarily expensive; it just needs a bit of smart planning at the right time. A 2-crore insurance cover can protect your family financially and provide them with a happy and healthy life. So, don't forget to calculate your exact insurance requirements and make the best choice to secure your family's future.
Sign in to leave a comment.