Is 1 crore term insurance coverage enough for your family

Mumbai (Maharashtra) [India] September 27: Term insurance, with its reasonable premium and high coverage, provides financial security for your family in the event of the policyholder's premature death. Choosing a ₹1 crore cover requires careful consideration of several variables. Inflation diminishes money's buying power over time, so what appears to be a significant sum now may not be worth the same 20 or 30 years from now. Rising medical costs and the rising cost of education add to the need for greater financial stability. 

Furthermore, lifestyle changes—such as raising your quality of living or taking on more financial responsibilities—can strain your family's resources. Term insurance does not lend itself to a one-size-fits-all strategy. It's critical to personalise your coverage to your family's specific financial circumstances, taking into account future milestones such as children's schooling, marriage, and retirement. Assessing your financial objectives holistically helps determine if a ₹1 crore term insurance coverage can ensure your family's future.

15 key points to consider when choosing a ₹1 crore term insurance cover

1.Current lifestyle and monthly expenses

Calculate the total expenditure that your family incurs in a month. For instance, if you are used to spending ₹50,000 per month, the ₹1 crore policy may provide your family with a regular income that could ensure a comfortable life for 15-16 years considering inflation. If your family requirements are high, you may require a more extensive policy.

2.Inflation and rising costs

Currently, the rate of inflation in India is constantly on the rise. A cover of ₹1 crore may seem adequate today but will dwindle over the years as the cost of living and education soars. Inflation strategy for the next two decades to three decades.

3.Outstanding loans and liabilities

If you have a home loan, car loan or any other large liabilities, make sure that your term insurance cover is adequate to meet these. If your liabilities are high, ₹1 crore may not be enough after these liabilities have been paid off.

4.Family's future needs

If you are young with young kids, think of expenses like school fees, college education, and even weddings down the line. These costs are only on the rise, and your policy must meet these needs adequately.

5.Single vs. dual income family

In a single-income earner household, the death of the breadwinner poses a significant threat to the financial status of the family. In such circumstances, the cover may be required to be more than ₹1 crore. For the working couples, a ₹1 crore cover might be adequate depending on the savings and the standard of living.

6.Emergency healthcare expenses

There is an increased cost of healthcare in India. Sometimes, families can be caught up in an accident or an illness that may wipe out all their savings. One should consider the possible inflation of the healthcare costs before determining whether ₹1 crore is sufficient.

7.Replacement of income

Find out how many months ₹1 crore will replace your current income for your family. The compensation of ₹1 crore may sound like a huge amount but if you have an annual income of ₹10 lakh, it will provide for you for only 10 years without inflation adjustment.

8.Current savings and investments

Your current financial portfolio plays a role. If you have significant savings, mutual funds, or fixed deposits, a 1 crore term insurance could act as a supplement to existing assets. Otherwise, you might need a higher cover.

9.Additional life goals

Factor in life goals such as purchasing property, business investments, or travelling. These additional financial aspirations need to be considered when assessing whether ₹1 crore is sufficient.

10.Dependents’ age and requirements

Family age and number of dependant members also play an important role. For those who are fully dependent on them, they may need a much higher coverage like ₹2 crore or more because depending on the age duration of the policy a ₹1 crore cover might not be sufficient for a family that has young children and elderly parents dependent on them.

11.Tax benefits

Although not a primary factor, it’s worth noting that term insurance premiums qualify for tax deductions under Section 80C of the Income Tax Act. They can avail tax benefits of any term insurance policy which is equivalent to a ₹1 crore policy.

12.Rider options

Riders such as critical illness or accidental death benefits can help to boost the policy amount to ₹1 crore. The addition of some of such riders enhances the cover without necessitating a higher policy sum assured.

13.Policy term

The length of your policy does matter. This is an advantage because it means that one will be protected for a longer period than if he or she had taken a shorter policy term. But if you decide to buy a policy when you are in your 30s then a 30-year term policy with ₹1 crore coverage will suffice.

14.Spousal term insurance

If both have insurance, a cover of ₹1 crore each for both spouses may be adequate because the overall coverage provides enhanced protection to the family.

15.Review and adjust

People’s financial status and requirements are dynamic. You should check on your policy every few years or so. For instance, you can always add to your insurance amount if you discover that ₹1 crore may not be adequate to cater for your family’s needs in the future or your income has risen.

Is ₹1 crore term insurance enough?

The question of whether ₹1 crore term insurance is sufficient for your family or not can be answered only with the help of the factors described above. The factors you need to look at include the current lifestyle, liabilities, dependents and future financial plans. To some families, for instance, a ₹1 crore policy may be adequate since they could have other forms of savings and fewer obligations.

For others, especially with higher expenses or loans, a larger cover might be necessary. It’s essential to calculate your family’s needs and reassess your policy regularly to ensure it still aligns with your financial situation. Taking all these factors into account will help you make an informed decision for your family's future security.