Choosing Sum Assured: Factors for Term Insurance Coverage
Over the past few years, the insurance industry in India has seen some positive changes. Slowly yet steadily, more and more people are realizing how the right kind of coverage can help them secure the financial future of their loved ones. While a majority of people consider life insurance to be a must-have in the financial portfolio, how much the coverage should be is often the tricky part for many.
The coverage that you opt for is the payout that your appointed nominee will receive if you pass away during the term of the policy. This amount, referred to as the sum assured, is quite a significant aspect of the term insurance policy that you opt for. It requires careful precision so that in case of an unfortunate incident, your family does not feel short-changed.
According to insurance experts, there are four ways to calculate the right sum assured. Let us take a look:
- Human Life Value
- Income Replacement
- Expense Replacement
- Underwriter’s thumb rule
To understand what other things you need to keep in mind when deciding the sum assured, Read More.
When it comes to providing for your family, nothing may seem enough. While it is only natural to have such feelings, you need to be cautious when choosing the amount. A high death benefit is definitely a good idea, but at the same time, make sure you remember that a high sum assured requires a higher premium. The premium should fit into your pocket so that you can pay it easily without missing any dues.
Here is how you can start thinking about the sum assured:
- Think about how long you plan to work
- Factor in your current expenses
- Think about any major expenses
- Chart out your finances
- Don’t forget inflation
Conclusion: Choosing the right amount is probably one of the most important things to consider when buying a term plan. While a lower sum assured can prove to be inadequate for the family in the long run, an amount too high might be very heavy on the pocket, as then the premiums would be high too.