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When you are earning a good amount, your prime objective is to provide a comfortable lifestyle to your family. A good house, the best education for kids, luxury vacations, and an assured future. To protect this lifestyle, many people opt for life insurance policies
A 3 crore term insurance cover might seem to be an extravagant sum, and people with middle-class incomes would not think of getting such a sum covered. However, if you belong to a higher-class income group, you should stop and ponder whether 3 crore insurance is enough for you.
Let me try to explain the whole thing in layman’s terms so that it is easy for anybody to understand, be it the teenager or granny.
Basics Of Term Insurance
Before I answer the question, let me enlighten you with all you need to know about term insurance. As the name suggests, term insurance is the most basic form of life insurance. You pay a certain amount of premium to the insurance company, and they pledge to pay a certain sum of money to your nominee upon your demise within the given term. If you survive the policy term, you get nothing even though you have paid a good amount of premium. The important thing about term insurance is that it is pure risk cover without any investment component.
Now, as far as the best term life insurance in India is concerned, you need to make sure that your nominee is able to manage all the future expenditures comfortably.
Why Higher Income Group Needs More Insurance Coverage
A higher income means a higher lifestyle. When you have a good income, you tend to have higher expenditures
Suppose you earn 10-20 Lacs PA. You might have a home loan of 1-2 crore. Your children might be studying abroad or in the best private universities in India, costing up to 1-3 crore. You spend around 1.5-3 lakh per month on personal expenses. All of this adds up to more than 3 crore. Your dependents would still need to manage all the above expenditures even if you are not there.
Rule Of Thumb
Financial advisors in India follow a rule of thumb that states that your term insurance cover should be 15-20 times your income.
- So if you earn 10 lakh PA, 1.5-2 crore sum assured would be ideal for you
- If you earn 25 lakh PA, you need 3.75-5 crore sum assured
- If you earn 50 lac PA, you need 7.5-10 crore sum assured
Clearly, if you are earning more than 20 lakh PA, 3 crore would be insufficient to meet your future expenditures.
How To Know What To Take
To know how much you should take, you need to answer the following questions
- What are my current liabilities? (Home loan, car loan, personal loan, etc.)
- What are my future goals? (Higher education of kids)
- How much do I spend on personal expenses?
- How long would my family need the financial support? Till the kids finish their postgraduation or till my spouse retires?
Add up all the numbers, and if the number is more than 3 crore, clearly 3 crore would not be enough.
How To Choose The Best Term Life Insurance In India
While choosing the best term life insurance in India for higher coverage, do not fall for cheap premium rates. Look for the following factors:
- Claim Settlement Ratio: Look for reputable insurance companies that have higher claim settlement ratios.
- Riders: Buy term life insurance policies that offer additional riders such as critical illness coverage and accidental death benefits.
- Increasing Sum Assured: Go for a plan that allows you to increase your sum assured by 5-10% every year to keep up with inflation.
Conclusion
Is 3 crores enough? Well, for middle class, it would besufficient,t but if you belong to a higher income group, you need to think of getting more than 3 crores covered. It is important to calculate your monthly spending and future expenditures once you are in a higher income group. Choosing the best term life insurance in India for your needs is extremely important so that your family is able to maintain the same lifestyle despite your untimely demise.