Appa, Baba, Dad, there are many endearments that mark the role of a father, but each carries the same weight. They represent security, unwavering strength, and boundless love. If you are fortunate, as I am, to have such titles bestowed on you – you’ve likely also spent many hours considering the well-being of those you hold dearest.
This Father's Day, as your children shower you with hugs, heartfelt messages, and thoughtful gifts, I urge you to steal a quiet moment for yourself to reflect upon that invisible security shield that you have created for your children, with your term insurance cover.
Have you done the maths and chosen the right life cover? Or have you gone for a ₹1 crore term plan - the go-to-choice for many first-time insurance buyers? Is ₹1 crore the magic number? Let’s first look at what term insurance is and what a ₹1 crore term plan’ means.
Term insurance provides financial protection to your family in the event of your unfortunate death. A ₹1 crore term plan would mean that your nominees will receive ₹1 crore upon your death.
But is that enough? An easy way to calculate the life cover is to use an age-based formula. If you are in your 30s, your life cover should be 20-25 times your annual income. This is because your family's lifestyle and needs will grow over time, and you want to ensure they have a financial cushion that will last them for decades. By the time you’re in your forties your income may have improved considerably so a more appropriate life cover would be 10-15 times your annual income.
If your calculations give you the figure of ₹1 crore, then go for it. The idea is to have a life cover that would cover your debts and family expenses till the age you might have retired. The principal role of life insurance is to replace your income in case of your untimely death so your family does not suffer any financial hardships.
However, this formula may not always give you an accurate answer. Consider the following to figure out whether a ₹1 crore insurance pay-out works for your dependents:
Your debts: Take into account your loans or financial obligations. Make sure the insurance coverage is sufficient to pay off these debts, so your family won't have to worry about them.
Your family's needs: Consider the financial needs of your family if you were no longer around. This includes things like daily living expenses, children's education, etc. Make sure the insurance pay-out would be enough to cover these expenses.
Replacing your income: How much money would your family need to maintain their lifestyle? How long would it take for your dependents to become financially independent? Ask yourself these questions and work out a number that can tide over inflation and provide for them during this time.
Long-term goals: Consider any long-term financial goals you have, such as saving for retirement or leaving an inheritance for your family. Make sure the insurance coverage aligns with these goals.
Affordability: Think about how much you can comfortably afford to pay for insurance premiums. It's important to find a balance between getting enough coverage and being able to afford the premiums.
Remember, on this special occasion of Father's Day, term insurance can be a meaningful way to express your love and care for your family's future.
Deciding on the life cover for a term insurance plan needs careful thought and a little bit of maths. There are many free calculators available online to help you plan this better. Use these resources to make an informed decision and keep your loved ones financially secure.
Satishwar B is the MD & CEO at Aegon Life Insurance Company Ltd
