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Investing in a term plan is a great way to protect yourself and your family from the uncertainties in life. You are required to pay a premium regularly, and in turn, you help ensure the financial security of your loved ones in case of an adverse incident. Apart from providing your family with some much-needed financial support in the event of your death, a family term plan can also give you tax breaks.

Insurance companies offer a ‘1 crore term plan’, which essentially pays out Rs. 1 crore to your beneficiary in the event of your demise. This kind of term plan for a family is quickly gaining popularity, since it offers the policyholder a sizeable cover at a low premium amount. However, is a 1 crore term plan actually enough for your family? In order to answer this question, you’ll need to consider the following factors.

What’s the size of your family?
The size of your family plays a major role in determining the payout of a term plan. If you have a small family with 4 or fewer members, then the 1 crore term plan should be enough to secure their finances in the event of your death. However, if your family consists of more than 4 members, you might want to consider getting a family term plan with a larger sum assured. Additionally, you should also keep the age of your family members in mind. Younger children may require higher financial expenses in the future, when they reach college-going age, while older members may require medical assistance in the future.

Are there any existing debts?
Another major factor to consider when choosing a term plan for a family is the amount of existing debt that you currently owe. If you have any outstanding loans, you may need to account for their monthly EMIs and try to ensure that your family will be capable of repaying the loan in the event of your absence. This is essential as the borrowing can quickly become a source of financial burden for your family once you’re no longer in the picture. If you’re burdened by a sizeable car loan, home loan, or any other borrowings, it may be advisable to look out for a family term plan that offers a larger cover.

What are your current expenses like?
Before you go ahead and purchase a 1 crore term plan, you can try listing out all your current monthly expenses. That way, you can easily factor in all the monthly outlays needed to sustain the family and determine whether the term plan’s cover of 1 crore would be adequate to financially support your family after your death. When calculating your expenses, it’s advisable to account for every single cost or expense that your family is likely to incur on a monthly basis, irrespective of how little or insignificant it is. You could start with essential outlays such as rent, utilities, and EMIs, if any, and then go on to add other discretionary expenses as well.

Does your family have any alternate sources of income?
If you’re the primary breadwinner of the family, it’s likely that your dependents rely entirely on this source of income for their necessities. However, if there are other incomes in place, tracking those alternative sources can give you a fair idea of the overall financial inflow needed for your family. If there are other sources of income in place, such as your spouse’s salary, rental income from a house property, or interest income from savings and deposits, then opting for a family term plan with a cover of 1 crore is justified. However, it can get a bit tricky if you are the sole breadwinner in your family, with no other source of income to supplement the financial assistance offered by the term plan. In that case, you might want to opt for a plan with a larger cover, so your family isn't in a tight spot.

What are your plans for the future?
Accounting for all expenses that your family might incur in the future can give you a lot of clarity when trying to decide if the 1 crore term plan is enough. Expenditures such as your children’s education, their wedding costs, health and medical expenses for your spouse and kids can be taken into account. Once you determine the average amount of funds needed to meet these future goals, you can then determine whether the 1 crore term plan can help your family meet those targets.

Have you factored in inflation?
This is possibly the single most neglected factor when deciding to opt for a term plan for a family. While a cover of Rs. 1 crore may seem like a huge amount today, it may not be as significant 10 or 15 years into the future. This is because of the concept of inflation. As the years go by, the value of money goes down, thus bringing down the purchasing power. Additionally, the cost of living also appears to be on a steady rise with each passing year. So, it is always a good idea to leave room for these rising costs before you decide on a term plan that can protect your family’s future.

Conclusion
When it comes to term plans, there is no one-size-fits-all approach. While a family term plan with a cover of Rs. 1 crore might be more than adequate for most people, it may fall short of supporting other families. Ultimately, it is up to you to determine what level of cover suits your family. And by considering the factors discussed previously, you can easily figure out if a 1 crore term plan will be enough to support your family’s financial goals.

You can learn more about Term Plans by browsing the website for the various Term Insurance Policies offered by PNB MetLife.

Disclaimer:

The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision..

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