People buy life insurance to create financial protection for their loved ones. They want to ensure that, in their absence, their loved ones have enough funds to not face any financial difficulties.
To ensure that the life insurance you buy safeguards your loved ones in your absence, it is essential that you choose coverage for your term plan which suffices them easily.
There is no single amount that is the ideal coverage for all policyholders. Instead, the coverage you need to choose depends upon a variety of factors.
You want to ensure that the coverage you choose is sufficient for your loved ones. Here buying term insurance benefits you tremendously.
The meaning of term insurance is life insurance for a fixed tenure. They are popular since they allow individuals to get the coverage they need for an affordable premium.
When you compare the premiums of term plans to other types of life insurance, you will find that term plans usually have the most affordable premium.
Five factors to consider for determining the premium of your term insurance
Once you have decided that you want to opt for a term plan, the next step would be determining the coverage you need. Read further to understand the different factors that influence your coverage needs:
Your financial condition is a crucial aspect that directly impacts your coverage needs. When you are determining the amount of coverage you need, take your income into consideration.
A common thumb rule that most individuals follow is that your term plan coverage should be at least 15 times your current annual income. This gives you an estimate of the coverage you need.
Assess the needs of your loved ones
The purpose of life insurance is to take care of the financial needs of your loved ones in your absence. Hence, assessing the needs of your loved ones is a crucial factor that directly impacts your premium.
When you are taking their needs into consideration, take inflation into account since it directly impacts their everyday life. Also, any other financial goals that they have should be kept in mind as well.
Take your liabilities into consideration
When you are walking through different stages of life, you may have to take loans for goals that require a huge sum of funds in one go.
For example, home loans, education loans, business loans, and even credit card debt, in some cases.
In case you lose your life, your loved ones would be directly burdened to repay these liabilities.
When you are calculating an estimate of the life insurance coverage you need, taking your liabilities into consideration is a must.
Without taking them into consideration, your family might find themselves in a tough spot financially in your absence.
Your financial goals
The goals that you have for the long haul also play a key role in determining the coverage of your term plan. The purpose of term insurance plans is to provide your family protection against any uncertainties.
You may not have any liabilities now but after a few years, you may be planning to buy a house. If you take a loan for your goal of buying a house, you need to ensure that your insurance coverage covers the debt.
Your financial goals directly impact your lifestyle and even that of your loved ones. Hence, though often overlooked, it is a huge factor that directly impacts your coverage needs.
The meaning of term insurance is to provide life cover until a certain age. The coverage amount you need depends upon your current age.
For example, if your term insurance is for ten years and your age is 20, your coverage needs are likely to be lower than an individual who is buying a term plan in his 30s for the same tenure.
Depending on your age, your priorities would vary and so would your coverage need. The lower your age is, the lower the premium of your life insurance is likely to be.
Above are the factors that directly impact your coverage needs. Ensure that you take these into consideration before going ahead with your purchase.
Also, ensure that you compare different term insurance plans and then buy the one that suits your needs.