Life is unpredictable, and securing the financial future of your family is highly essential. One of the best ways to do so is by investing in a term insurance plan. But how much would be sufficient? Is a 2 crore term insurance plan for you? Let us discuss this in detail.
What is a Term Insurance Plan?
A term insurance plan is a pure protection policy that gives financial protection to your loved ones on your untimely death. It does not offer any maturity benefits like investment-linked insurance policies. Rather, it guarantees your dependents receive a lump sum amount if anything happens to you within the policy term.
The actual dilemma is how much coverage to have. Having a 2 crore term insurance plan might be expensive, but it might be the best option with your financial obligations.
Who Can Choose a 2 Crore Term Insurance Plan?
A 2 crore term insurance plan is best suited for those who have enormous financial obligations. Take this option if:
- You are the only or the main breadwinner in the household.
- You have dependent family members like children, spouse, or parents.
- You have pending liabilities like a home loan, car loan, or education loan.
- You desire to provide the education, marriage, and other future financial requirements of your children.
- You live a high lifestyle, and your family depends on your income.
How to Calculate the Correct Term Insurance Coverage
There are several points to keep in mind when choosing the right coverage amount.
10-15 Times Your Yearly Salary: Another formula that is commonly used is that your cover must be 10-15 times your annual income. If your yearly salary is ₹20 lakhs, you must go for a 2 crore term insurance policy so that you can get the appropriate protection.
Liabilities: All your outstanding loans should be accounted for under your policy. For instance, if you have taken a ₹50 lakh home loan and a ₹10 lakh car loan, your insurance cover should be sufficient to clear these loans without economically burdening your family.
Save for Future Costs: Think of future costs such as your child’s post-graduation education, wedding, and medical emergencies. A well-planned term insurance policy ensures these costs are met even in your absence.
Adjust for Inflation: The money loses its value over time due to inflation. Today’s 1 crore policy will be insufficient after 20 years. A 2 crore term insurance policy provides a better financial buffer against rising expenses.
Advantages of a 2 Crore Term Insurance Plan
Affordable Premium with High Coverage: Most individuals believe that high coverage needs high premiums, but that’s not necessarily the case. A 2 crore term insurance policy may be very affordable, provided you purchase it early in life. For example, a 30-year-old non-smoker may purchase a policy with a premium of around ₹800-₹1,000 per month.
Financial Security for Your Loved Ones: A 2 crore term insurance cover will provide your family members with the means to go on with their lifestyle and pay bills even without you.
Peace of Mind: With the knowledge that the financial future of your family members is secure, you will be able to give undivided attention to your business life and other work without a financial worry.
Tax Benefits: The premium for a term insurance policy is deductible under Section 80C of the Income Tax Act. Your nominee also receives the death benefit tax-free under Section 10(10D).
How to Select the Proper Term Insurance Plan?
Compare Insurers
The premium rates, claim settlement rates, and added features differ across insurers. Study and compare the various plans prior to selecting a plan.
Search for Riders That Matter
There are various riders offered by most insurance companies that enhance your policy coverage. Some of them are:
- Accidental Death Benefit: This covers an extra sum in the event of death caused by an accident.
- Critical Illness Cover: This pays a lump sum upon diagnosis of severe diseases like cancer or heart disease.
- Waiver of Premium: This allows future premiums to be waived off if you fall victim to permanent disability without killing the policy.
Verify the Claim Settlement Ratio
The claim settlement ratio (CSR) refers to the percentage of the claims an insurer has successfully settled. A CSR higher than 95% is reliable.
Choose the Right Policy Term
Your policy must be bought from the point you purchase it to retirement age. In case you are purchasing it at the age of 30 years, buy a 30-35 year term so that you remain covered till the age of financial independence.
When is the Right Time to Buy Term Insurance?
You should invest in a term insurance policy as early as possible. The younger you are, the smaller your premium will be.
For instance, a person who is 25 years old can purchase a 2 crore term insurance at a far lower premium than a person purchasing the same policy at age 40. Delaying too much raises the premium value as well as the chances of developing health issues that may affect eligibility.
Myths About Term Insurance
Myth 1: I Don’t Need Term Insurance If I’m Young and Healthy
A majority of young career individuals procrastinate about buying a term insurance policy, thinking it is not required at their level. However, at any moment, life can drastically change. Early purchase ensures a low premium and financial security in the future.
Myth 2: A 2 Crore Policy is Too Much for Me
Though ₹2 crore might appear to be a fortune, when you factor in inflation, future costs, and liabilities, you might even require this amount of cover to sustain your family.
Myth 3: Term Insurance is a Waste if I Don’t Die
Aside from other life insurance schemes paying maturity benefit, term insurance offers a death benefit alone. Nevertheless, its sole use is to guarantee your family’s future. Similar to health or vehicle insurance, it’s an insurance policy which is created in times of crisis.
Last Thoughts: Should a 2 Crore Term Insurance Plan be Yours?
A 2 crore term policy is a very wise decision for family dependents and financially committed individuals. It provides economic protection, tax benefit, and stress relief at a lower premium cost. The strategy is to commence early, do a comparison between the various plans, and put money into that which suits you.
Since you have been considering purchasing term insurance, it is the best time now to acquire a policy and secure your loved ones for the future.
