Stories
Is Your Rs 1 Crore Term Plan Enough? Calculate Your Family's Real Protection Needs
- •A Rs 1 crore term plan may not be sufficient; the 10-times-income formula is merely a starting point for calculating insurance needs.
- •Financial planners recommend a need-based calculation considering outstanding debts like home loans, education loans, and personal loans.
- •Future financial goals such as children's education, marriage, and a spouse's retirement, along with inflation, must be factored into the required cover.
- •Existing usable savings and financial assets can reduce the insurance gap, but funds earmarked for specific goals should not be considered surplus.
- •Review term insurance coverage after major life changes like marriage, childbirth, new loans, or significant salary increases to ensure adequate protection.
Key Questions Answered
A Rs 1 crore term plan may only cover basic income multiples, overlooking major ongoing liabilities like home loans, children's education costs, future household expenses, and inflation. Financial planners recommend treating the 10-times-income formula as a mere starting point rather than a final coverage amount.
The Human Life Value approach estimates financial protection needs by looking at future income gaps rather than just current salary. It accounts for income, outstanding debts, future financial commitments, and the overall financial contribution the policyholder would have provided to dependents.
Term insurance should be reviewed following major life changes such as marriage, the birth of a child, taking on a new home loan, significant salary increases, or substantial wealth creation. These milestones alter a family's liabilities and long-term financial goals, meaning older policy amounts may no longer be adequate.
