Deciding the best form of protection for your family should not be as difficult as solving a math problem with many unknowns. Generally, when we talk about a term plan for 1 crore, it is almost always seen as an enormous amount of money.
However, in actuality, this amount is nothing more than a pledge: a safety net that guarantees your family members will be able to maintain their standard of living even in your absence.
Life is very fast-paced in India. We need some financial support to realize our dreams for, say, our children’s education, a better house, or our spouse’s retirement in comfort. Hence, the term insurance plan comes to our rescue.
What Precisely is a Term Plan?
A term plan is akin to a pure “protection” cover. By paying a small sum of money at periodic intervals (referred to as the premium), you are eligible to an agreement from the insurer wherein if something untoward happens to you within the policy period, the insurance company will make a single payment of a predetermined amount, say Rs. 1 crore, to your spouse and children.
Unlike other schemes, it does not offer you “returns” on your survival after the term, and on account of this, it is the most inexpensive method of obtaining the highest coverage possible.
Is 1 Crore Sufficient for You?
The number “1 Crore” has become very famous in India. A lot of people even view this sum as a “magic number” that will take care of all their monetary concerns. But is this the right number for your particular level of earnings?
Three simple things are required from you to arrive at this decision:
- Your Yearly Income: What is your annual take-home salary?
- Your Spending: What amount does your family usually spend on food, rent, and utilities?
- Your Loan / Credit: Do you have a home loan, car loan, etc.?
Choosing Based on Your Income
The best way to pick a cover is the “Income Multiplier” method. Most experts suggest that your life cover should be at least 15 to 20 times your annual income.
For Early Earners (Income: ₹5 Lakh to ₹8 Lakh)
Starting a career generally equates to a term plan of 1 crore being the best bet at the entry level.
- Reason: One is younger and healthier at this stage. Premiums are so extremely low that sometimes they’re even less than a monthly pizza treat.
- Advantage: It protects parents and a potential spouse. Irrespective of the low present income, this cover of 1 crore will be a big shield when you have increased responsibility.
For Mid-Level Professionals (Income: ₹10 Lakh to ₹15 Lakh)
Increasing levels in a career ladder mean a change of lifestyle too. You could have a baby or a new loan (EMI) for a house.
- Reason: 1 crore cover is a very decent basis, but loans should be considered. For example, a home loan of ₹50 lakh, then the 1 crore plan leaves only ₹50 lakh to support the family’s needs.
- Plan: If your salary is in this band, then 1 crore should be the minimum limit for you. High loan borrowers may also consider 1.5 or 2 crore.
For High Earners (Income: ₹20 Lakh and Above)
A 1 crore plan can be very limiting for those with higher incomes.
- Reason: Your family has been accustomed to the standard of living. If you spend ₹15 lakh yearly, then 1 crore would go in just 6 or 7 years.
- Plan: The income formula can be used. Earning ₹20 lakh should opt for an insurance cover of ₹3 crore. Nevertheless, a 1 crore policy is suitable as a corporate insurance lead to personal coverage.
4 Simple Steps to Choose Your Plan
Step 1: Check the “Claim Settlement Ratio”
This is an elaborate way of asking a very straightforward question: Does the company really pay out? Pick companies whose ratio is 98% or more. This not only assures that your family will receive the money but also that they won’t have to struggle to get it.
Step 2: Choose the Right Age
It’s advisable to have the policy coverage last till the time you are planning to stop working (around 60 or 65 years). There is no point in having life insurance at 85 because by then your kids would be independent, and you would have cleared all your debts. Also, maintaining the policy till 60 will make your premium more affordable.
Step 3: Be Honest About Health
Disclosure of smoking or any health conditions is very important while buying term life insurance. If you conceal a habit so as to save a few hundred rupees today, the company may very well refuse to pay ₹1 crore to your family later on. That is such a gamble that it simply is not worth it.
Step 4: Add “Riders” (Extra Shields)
Riders are like “add-ons” for your plan.
- Critical Illness Rider: Helps you financially if you are found to have a major illness such as cancer.
- Accidental Death Rider: Provides an additional amount of money in case the death is a result of an accident.
Why Should You Purchase It Today?
Age means money in insurance. If you purchase a 1 crore term plan at the age of 25, your premium will remain unchanged throughout your lifetime. On the other hand, if you decide to purchase it at the age of 35 or 45, the cost will rise considerably. Also, with advancing age, you are more likely to suffer from health problems, which might make it difficult for you to get the plan.
Myths in India
- If you think, “I am insured through my employer,” consider this: Your workplace insurance will expire the moment you quit the job. On the contrary, a personal term insurance plan will be with you wherever you work.
- Some of us think, “One crore is way too much money,” but remember that with inflation, prices go up every year. What costs you ₹100 today could cost you ₹200 in ten years. One crore is a sufficient sum to take care of your future needs.
- Some people say, “If I survive, then I will have wasted my money.” You can compare this to installing a car airbag. You actually don’t want to deploy it, but it is good to have, isn’t it? So, you are really paying for “peace of mind.”
Conclusion
Getting a term life insurance plan is an amazing expression of your love and concern for your family. It says that you are thinking about the time when you will not be present physically. If you are earning between ₹5 lakh to ₹15 lakh annually, then a ₹1 crore term plan is generally considered to be the “right spot.” Besides being affordable and understandable, it also offers you a sufficient amount to pay off your debts and still keep your family well.
Spend some time today. Check the amount of money you have, and also think about your family. Then choose to keep them safe simply by purchasing the right insurance. It hardly takes ten minutes to guarantee your family’s happiness for the next thirty years.
