Did you know? Term insurance is a simple, transparent product focused on financial security, with premiums locked in for the policy term, though buying early helps secure lower rates. (Source)

Thinking about your family’s financial future? Term insurance is often seen as a simple and effective way to secure that. 

A common question people have is whether a ₹2 crore coverage is sufficient to support their loved ones in their absence. 

There’s no universal answer to this, but getting a grip on how term insurance functions and evaluating your personal finances can lead to a smart choice. 

In this blog post, we’ll dive into whether a 2-crore term insurance policy can truly safeguard your family’s financial well-being.

Let’s begin!

Key Takeaways 

• Understanding what term insurance is
• Decoding the components of a two crore plan 
• Looking at some factors to consider
• Discussing scenarios where the amount becomes insufficient

What is Term Insurance?

Term insurance is a type of life insurance that provides coverage to the policyholder’s family in the event of his or her untimely death during the policy term. There is no investment element or maturity amount involved; its primary purpose is to cover essential expenses and ensure financial stability.

The policyholder chooses a particular sum assured, say ₹2 crore, and pays premiums at regular intervals. If the person dies during the policy term, the insurance provider pays this amount to the nominee. The goal is to replace the lost income and allow the family to maintain their current lifestyle without affecting their finances.

Interesting Facts 
Some plans offer a “Return of Premium” feature, which refunds all premiums paid if the policyholder survives the policy term.
(Source)

Is ₹2 Crore Sufficient? Let’s Analyse the Components

To assess whether ₹2 crore term life insurance is sufficient, one must first assess the expenses that this sum is intended to address. The following are several key components:

• Daily Living Expenses: These include regular monthly expenses like groceries, bills, school fees, transportation, healthcare, and other recurring costs. A family of four living in a metro may require anywhere between ₹50,000 and ₹1,00,000 per year.  When this is multiplied by 20 years, it totals to an amount of ₹1.2 crore to

₹2.4 crore.

• Loans and Liabilities: If there are any outstanding home loans, personal loans, or credit card charges, these must be settled. Neglecting these could put your family in debt.

• Education Expenses: The cost of higher education has been increasing consistently. Planning for the future of your children, either school tuition, college, or even overseas studies, can come to several lakhs or crores over the duration of study and the country concerned.

• Medical Emergencies: Even when you are covered by insurance, it is advisable to have a financial cushion for medical bills or long-term care.

• Inflation:  It’s one of those things people don’t think about much, but it can really change how much your money is worth down the line. What seems like enough today might not cut it in 10 to 20 years.

Intriguing Insights 

This infographic shows the factors to consider when buying a term insurance plan

Factors to Consider When Selecting the Sum Assured

Selecting the appropriate term insurance coverage isn’t a matter of selecting a round figure. It must be based on a thoughtful evaluation of your immediate and future financial requirements. Consider:

• Age Matters: If you’re younger, chances are you have fewer financial responsibilities. Locking in a bigger coverage amount now can mean lower premiums down the line.

• Income Backup: A good rule of thumb is to aim for coverage that’s about 10 to 15 times what you make in a year.

• Keeping Up the Family Vibe: If your family enjoys a certain lifestyle, the coverage should be enough to keep that going strong.

• Number of Dependents: The more dependents, the greater the financial burden.

• Existing Assets: If you have passive income, savings, or investments, your term insurance may not have to carry the entire amount.

Benefits of Choosing ₹2 Crore Coverage

Below are some benefits of choosing a 2 crore term insurance policy.

• Low Premiums: Due to increased awareness and competitive market conditions, insurance companies now offer full coverage at affordable rates, especially for young couples and non-smokers.

• Simplicity: Term plans are straightforward; they just provide life cover.

• Tax Benefits: Term insurance premiums are tax-deductible as specified under Section 80C of the Income Tax Act.

When ₹2 Crore Might Not Be Enough

Where the policyholder is the only earning member with young kids, home loans, and dreams of studying abroad, ₹2 crore would be inadequate.

In these circumstances, it can be useful to:

• Take a peek at your term plan every couple of years.

• Think about adding some extras for income, accidental death, or critical illness coverage.
• Combine your term plan with health insurance and other long-term investments.

Conclusion

While ₹2 crore is a reasonable starting amount for most professionals and salaried employees, it must be viewed as a beginning figure and not as a final figure. The suitability of a term plan purely depends on your family’s financial requirements, lifestyle, and long- term aspirations. 

If you’re looking for peace of mind for your family’s future, companies like Tata AIA offer a bunch of term plans that can help. Take a good look at what you owe, how much you earn, and what you own, and then figure out if 2 crore is enough. Or if you might want to go for a bigger coverage amount to really have your family covered.

Disclaimer: The information provided above is for informational purposes only and is not intended as professional or legal advice. The Insurance Regulatory and Development Authority of India (IRDAI) is not responsible for any decisions made based on the information.

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