How to Choose the Right Sum Assured Under a Term Plan?

It is a well-known fact that term insurance is a must-have in your financial portfolio. And there is a reason for financial advisors to advocate it: as term insurance essentially provides your family financial protection in your absence. The sum assured in term insurance what the nominee will get in case the life assured dies during the policy tenure. So, choosing the right term plan with an adequate cover is quite crucial. It must be done with the utmost precision, for it is the term plan’s sum assured amount that your family will be supported financially in case of your untimely demise. If you choose too low a sum assured, it may be insufficient for your family even to meet monthly household expenses or to pay loans/debts, if any. Consequently, such a term plan with a low sum assured loses its value for which it was opted in the first place. On the other hand, if you choose too high a sum assured, you will end up paying a high premium. Thus, choosing a term insurance plan cover meticulously that should be good enough for your family to carry on life without any financial burden even in your absence. If choosing a term plan sum assured is overwhelming for you or you have questions in your mind such as: Should you buy a term plan with INR 50 lakh cover or INR 1 crore term plan? Then this article aims to answer those queries. Further, it helps you in making the correct decision in buying a term plan with the right sum assured with confidence.

Steps To Be Followed To Choose The Right Sum Assured

When determining the coverage needed for term insurance to protect your family from financial disruptions after your passing, it's essential to calculate the gap between what you will leave behind and your family's actual financial needs. So, how do you calculate this gap? Step 1: Calculate the amount you owe.
Step 2: Calculate the amount you own.

✅The Amount You Owe

This represents the financial responsibility your family will bear in the absence of the primary earner, covering both immediate and long-term needs. This can be broken down into three categories -
● Living Expenses Corpus
This fund ensures a steady passive income for your family's daily requirements. Calculate it by summing up monthly and yearly expenditures such as rent, school fees, salaries for domestic help, groceries, and other household costs for a year. Divide the total by the expected interest rate to determine the necessary corpus. Keep in mind the inflation rate.
● Big Dreams Fund
Reserved for substantial, one-time expenses in the future, encompassing significant aspirations like your wife's higher education, your child's education, wedding, etc. ● Major Liabilities Fund
Accounts for all outstanding loans and financial obligations that your family will need to settle upon your demise. Sum up all personal loans, house loans, car loans, joint loans, and any other liabilities for which you are a guarantor.
When you add these three, you will get the total amount you owe.

✅The Amount You Own

Conduct a comprehensive evaluation of your existing funds, encompassing various financial assets such as fixed deposits, mutual funds, equity shares, cash, and bank deposits. While the instinct may be to simply add up all the assets, it's crucial to recognize that not all assets pose the same level of risk. Therefore, it's essential to account for these risk factors to plan for the worst-case scenario. Consider the liquidity of each asset and multiply it by its respective risk factor to ensure a more accurate assessment of the funds readily available for your family in times of need. For example -
● Existing Life Insurance Covers @ 100%.
● Savings, FDs & Cash @ 100%: Consider these amounts at their full 100% value.
● Equity investments @ 50%: Conservatively assess all equity shares and equity-linked investments at half their total value.
● Gold & residential property @ 0%: Assign zero value to these assets, as they may not be easily liquidated for immediate needs like grocery purchases.
● Stock options @ 0%: Due to their high-risk nature, consider stock options at zero value, with any payoff considered a bonus.
Summing up these assessed numbers provides the total value of assets you currently own.
To calculate the required cover, use the formula -
Cover Amount = The Amount You Owe – The Amount You Own
This method ensures a precise and scientific approach to determining the financial support your family needs in your abscence. It's important to factor in inflation as well. Also, deduct any existing insurance coverage when determining the necessary cover, and remember to review your coverage periodically to accommodate new responsibilities. Utilise this systematic approach to calculate the term insurance your family requires, steering away from generic rules. Each family possesses unique needs, so it's crucial to assess all aspects of your finances and expenses for an accurate coverage calculation.

Choose The Right Term Plan With Affordable Sum Assured Premium

Seeking a term plan that provides ample coverage without burning a hole in your pocket? No need to fret - we offer a variety of term insurance plans tailored to cater to diverse needs while keeping your financial situation and goals in mind. Here are a few of the term plans we provide -
● ABSLI Salaried Term Plan [UIN:109N141V01] - A versatile term insurance solution created exclusively to cater to the protection needs of salaried individuals.
● ABSLI DigiShield Plan [UIN:109N108V11] - A term plan offering appealing features, benefits, and optional riders to enhance your coverage.
● ABSLI Saral Jeevan Bima [ UIN: 109N128V01] - A budget-friendly term insurance option designed thoughtfully to accommodate everyone's financial constraints.
● ABSLI Anmol Suraksha Kawach [UIN: 109N139V01] - A short-duration term insurance plan crafted to safeguard your loved ones.
● ABSLI Poorna Suraksha Kawach [ UIN: 109N138V02] is an affordable plan with numerous features that address all your protection requirements.
Explore the details of these plans on our website, where you can delve into the fine print to grasp the features, benefits, and specific terms and conditions. To simplify your decision-making process, you can request quotes and assess whether the plans align with your budget and preferences. Here's what you need to do -

1. Simply navigate to our website and search for the desired insurance plan.
   
2. Click on the 'All Insurance' tab, then select 'Term Insurance' to view all available plans under this category.
   
3. Next, provide essential personal details such as your name, gender, phone number, smoking habits, health condition, profession, etc.
   
4. The process also considers various factors like coverage amount, policy duration, premium payment mode, premium payment frequency, etc. to estimate the cost of protection. This holistic approach allows you to anticipate and plan for the financial commitment associated with your chosen coverage.
   
5. Tailor your policy to suit your preferences by tweaking the sum assured, modifying the policy tenure, incorporating riders, or opting for additional features and benefits. Easily assess how these adjustments influence your premium, empowering you to make better decisions regarding your term life insurance coverage.
   
6. Once you have decided, simply fill in the required details and submit your application effortlessly.
   Your personalised term insurance plan is just a few clicks away.
   You must ensure that you do not buy a term plan and still stay underinsured or not end up buying a wrong plan cover. Thus, choosing the right plan with an adequate cover is crucial. With the above-mentioned pointers to incorporate while deciding the sum assured, you will be confident in making the informed decision without any worries if the chosen cover is good enough for family or not. There’s nothing better than knowing that your family will be financially secure even in your absence. Choose now to provide your family with a financial shield at an affordable premium and live worry-free.