Term insurance is a type of life insurance that provides a lump sum amount to the nominee in case of the policyholder’s death during the policy term. Term insurance is one of the most affordable and effective ways to secure your family’s financial future in your absence. But how do you decide how much term cover you need? Here are some factors to consider:

Calculate your post-tax income and expenses

The first step to finding the optimal term insurance cover is calculating the post-tax income you contribute to the household after your expenses. Use this number to calculate your total financial contribution to your family up to your retirement age, factoring in inflation, income appreciation, and various financial goals and needs (for example, child education, retirement planning, EMIs, etc.). After that, calculate the present value of the total sum contributed over your earning lifespan. You should get a term cover that replaces the financial contribution to your family in the unfortunate situation of loss of life.

How to choose the right term insurance cover for your family
How to choose the right term insurance cover for your family

Consider your liabilities and assets

Another factor to consider is your liabilities and assets. Liabilities are the debts or obligations that you have, such as home loans, car loans, personal loans, credit card bills, etc. Assets are the resources that you own, such as property, investments, savings, etc. Ideally, your term cover should be enough to clear all your liabilities and leave some surplus for your family to meet their expenses and goals. You can subtract your assets from your liabilities to get an estimate of your net liability.

Follow the thumb rule of 10-15 times your annual income

As a thumb rule, having a term cover which is 10-15 times of your annual income is an ideal cover. Policybazaar addresses this using an example – Mr. Sharma has an annual income of Rs 10 lakh and a monthly expense of Rs 25,000 (i.e. INR 3 lacs annually). Additionally, he has an outstanding loan of Rs 30 lakh. According to this thumb rule, his ideal term cover should be Rs 1 crore (10 times his annual income) plus Rs 30 lakh (his loan amount) = Rs 1.3 crore.

Choose a long-term coverage till 99 years

You can choose long-term coverage till 99 years to leave a legacy for your loved ones at a premium you can afford. This long-term cover benefit is one of the important factors that you need to check when looking for the best term insurance plan. Higher Sum Assured at Affordable Rates. A long-term cover can also help you avoid the hassle of renewing or buying a new policy at a later stage of life when the premiums may be higher due to age and health factors.

Compare different plans and features online

The last step is to compare different term insurance plans and features online to find the best one that suits your needs and budget. You can use online tools like Policybazaar.com or Coverfox.com to compare various plans from different insurers on parameters like premium, coverage, benefits, riders, claim settlement ratio, etc. You can also read customer reviews and ratings to get an idea of the service quality and customer satisfaction of different insurers.

Term insurance is a vital part of your financial planning that can ensure peace of mind for you and your family. By following these steps, you can choose the right term cover that can provide adequate protection and support to your loved ones in case of any unforeseen event.


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