Choosing term insurance can seem easy. However, the selection of the right term insurance policy can be a daunting task since the financial protection of your family can depend on it. A term plan can provide your loved ones with a sum assured value in your absence to maintain their financial stability. If you do not choose an adequate sum assured amount at the time of purchase, your family might suffer financially after your death. Before you buy term insurance for the financial well-being of your family, let’s first understand how to choose the ideal sum assured amount:
- Evaluate your active working years
As a working professional, you might have a specifically targeted age of retirement. With the retirement age in mind, you might continue to work rigorously during your active working years. While you might receive a regular income during your active working years, the flow of your money can stop after retirement. Hence, you might require a term insurance policy to provide financial support when you do not have any source of income. Before purchasing a term policy, you should evaluate the number of years you would continue to earn. Your earning years can impact the total amount of sum assured value that you should be selecting.
- Analyse your finances
Analysing your finances can help you to decide how much sum assured value your whole family requires. As the breadwinner, you should chart out the routine and future expenses of your entire family. While the routine expenses can include utility bills, groceries, rent payments, EMI, and so on, the future expenses can be your children’s education, their dream wedding, your spouse’s retirement, etc. After you identify the expenses, select a coverage in a way that can cover all the costs of your family members along with the growing rate of inflation.
- Consider your life goals
As a working adult, you might have specific goals such as traveling, starting a new venture, etc. and milestones such as getting married, having kids, and so on that you wish to reach. However, you should have adequate resources to fulfil your aspirations. Typically, you should consider your short term goals as well as long-term goals before choosing the sum assured value. Moreover, you should jointly discuss your life goals with your family members to ensure everybody’s dreams stay aligned with the term coverage value. Many term policies can allow you to increase your coverage amount after crossing specific milestones in your life. It is one of their term insurance benefits.
- Keep a tab on your liabilities
When you are young, you might have borrowed loans from the creditors to provide financial aid to your immediate goals. For instance, you opt for a student loan for higher education, travel loans to explore an exotic location, or a business loan to start a new venture. If you have uncleared debts, you should keep a tab on all your stacked pay-out. Moreover, you should select the coverage amount in a way that can provide money to your loved ones to clear your past liabilities in your absence without any financial constraints.
In a nutshell, selecting the coverage amount can be as important as choosing the right term insurance policy. Since the primary purpose of a term policy can lie in the coverage value, you should select the term coverage after a lot of thought. As a policyholder, you should neither opt for a high coverage nor a low coverage. The chosen coverage value should be particularly based on the financial requirements of your family.