Calculating Term Insurance and Choosing the Right Plan?
On February 16, 2025 By newsroom Topic: India Money Advice
1. How to Calculate Term Insurance:
-
Monthly Expenses Formula:
- Multiply monthly expenses by 200 to calculate the term insurance amount needed.
- Example:50,000 monthly expenses50,000 × 200 =1 crore coverage.
- This ensures the family earns ~?50,000/month from Fixed Deposit returns at 6% interest.
-
Annual Income Formula:
- Choose a coverage amount 15-20 times your annual income for sufficient protection.
- Example:10 lakh annual income Coverage of1.5 to2 crore.
2. Determining the Policy Term:
- Cover Earning Years:
- Choose a term that extends at least until retirement (age 58-60).
- Loan Coverage:
- If purchasing to cover liabilities like a home loan, match the term to the loan repayment period.
- Longer Terms:
- Opt for the longest term offered if affordable, for extended protection.
3. Buying Term Policy Under MWP Act:
- Protection for Family:
- Policies under the Married Women’s Property (MWP) Act ensure the payout goes directly to the wife/children.
- It cannot be attached by creditors to repay debts or liabilities.
- Who Should Use MWP Act:
- Ideal for married individuals with liabilities to secure the family’s financial future.
Summary of Benefits of Term Insurance:
- Financial Security:
- Provides replacement income for the family after the policyholder’s death.
- Tailored Terms:
- Covers liabilities like loans and future expenses, ensuring peace of mind.
- MWP Act Advantages:
- Protects the payout from legal claims, ensuring family financial independence.
Action Steps:
- Calculate your required coverage using monthly expenses or annual income.
- Align the policy term with your earning years or liability duration.
- Consider using the MWP Act for added protection.
This proactive approach ensures your family remains financially secure even in unforeseen circumstances.
