Life has suddenly become a pool of uncertainty since the COVID-19 pandemic has hit the world. We all need little boosts of assurance in such times to help keep our minds at ease. An important aspect of everyone's life is their finances and knowing that you and your family are financially secure can take a huge load off your shoulders.
Term Insurance is one of the simplest, accessible and affordable ways of ensuring that your loved ones have ample financial back up, in case of an emergency.
Term Insurance is as easy as ABC!
The primary objective of a term insurance policy is to ensure protection to your family in case of an unprecedented or untimely death. In case the policyholder is the sole breadwinner in the family and expires suddenly, his/her family undergoes major emotional and financial distress. Hence, the payout of a term insurance policy can help the departed's family remain financially stable and manage regular expenses.
Term insurance plans have multiple benefits and are also kept aside for a family's future milestones like a child's higher education or marriage, to pay off loans and debt in case of emergency and even enjoy tax exemptions.
Term insurance policies are increasingly getting quite popular and a common term associated with term insurance is 1 Crore term insurance. A 1cr Term Plan is a term policy with a sum assured of ₹ 1 Crore which is paid as death benefit to the family/beneficiary in case of death of policyholder.
Basically, having an 8-figure amount set aside for contingencies can put your mind at ease and take care of many of your insurance and expenditures. The premium for maintaining this 1 crore term plans are substantially low making this a great deal. Even the best term insurance plans offering 1 Cr sum assured have a premium of less than ₹1000/month.
All of us have different insurance needs. 1 crore is not the 'golden number' which is right for everyone. Moreover, our family expenses differ and it varies when there is more than one income in the household. One must calculate their cover amount after taking into consideration various factors ranging from your family's basic needs to financial liabilities like loans, debts and other payoffs. Your investment portfolio, savings etc. also need to be factored in before deciding your cover amount.
Besides these factors, one must keep in mind inflations and hikes along with a retirement amount for your spouse in case of early demise etc. in order to make a more accurate guess on the amount a family needs to survive.
A simple calculation exercise can help you arrive at the right cover amount which will help you understand the current status and future financial needs of your family. There are online human life calculators available today to help you determine the right term insurance cover for you.
Let's explore a few examples to understand whether a 1 crore term insurance is the right cover amount for us.
Amit is a healthy 30 year old with two children and a home loan. He is thinking of investing in a 1 Crore term insurance plan. Let's see whether this cover amount is sufficient for his family's financial needs.
| Amit’s Age | 30 years |
| Retirement Age | 60 years |
| Current Family’s Expenses ( per year) | Rs. 3 lakhs |
| Family’s Expenses for the Next 30 Years ( with 8% yearly inflation) | Rs. 3 Crores |
| Home Loan | Rs. 50 lakhs |
| Child Future Education | Rs. 50 lakhs |
| Total Expenses | Rs. 4 Crores (Rs. 3 Crores + Rs. 50 lakhs + Rs. 50 lakhs) |
| Personal Savings PF+ Mutual funds | Rs. 50 lakhs |
| Required Life Insurance Cover | Rs. 4 Crores – Rs. 50 lakhs = Rs. 3.5 Crores |
So, a 1 Crore term insurance plan can fall short of up to ₹2.5 Crores for Amit's family in case of an emergency and he would need to look for a term insurance plan with a bigger sum assured.
Now, let's take the case of Tanmay- a young, healthy, single 25 year old man who invests in a 1cr Term Plan.
Tanmay's Finances:
| Tanmay’s Age | 25 years |
| Annual Income | Rs. 6 lakhs |
| Home Loan | Nil |
| Dependent Members | None |
| Personal Expenses | Rs. 4 lakhs |
| Child Education Expenses | Nil |
| Current Term Insurance Cover | Rs. 1 Crore |
| Required Cover | Nil ( at present) |
| Personal Savings + Mutual funds | Rs. 2 lakhs |
Although he doesn't need a term insurance plan according to the calculations, Tanmay is wise to invest in a term plan early on to enjoy a low premium and high cover , to prepare in case of an emergency. As he moves ahead in life, he can review his policy and expand the plan to include wife and children.
As you can see, although 1cr sounds like a sufficient number for contingencies, it is subjective whether the cover amount would be sufficient for all. However, for young people, this is a secure investment to reap the best benefits at a later time.
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Tax benefits are another appealing feature for any term insurance policy. You can get a deduction under section 80C for the premium paid. Also, 80D of the Income Tax Act allows you to claim a deduction for the premium paid for critical illness. Apart from this, any amount received by the nominee on account of the policyholder's death is exempt under section 10(10D).
The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale
Consult with your financial advisor before making any decisions on insurance purchase.
*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time’
Term insurance policies are popular because these are pure protection policies which offer a high coverage at the lowest premium cost. For a 1 Cr term plan, the premium for an individual can be as low as ₹422 per month and the premium rates rarely go beyond ₹1000 per month.
It is important to compare the Claim Settlement Ratio and rates of premium offered by various insurance providers online before investing in a 1 crore term plan.
Term insurance can be bought by anybody over 18 years of age and the upper limit for buying term insurance lies between 65-69 years, depending on the insurance provider.
There are various benefits attached to a term insurance plan and they are as follows:
