Consider these five factors when calculating your term plan amount

One of the most important questions you will face when you buy insurance or a term plan, is how much is sufficient insurance for you.  Many factors should be taken into account when you decide you insurance amount. The amount should be sufficient for your dependents to survive on if you’re not around to provide for them.

Sometimes, just a simple term plan is not enough to supplement income if the sole breadwinner of the family passes away. In such cases, one must also invest in an endowment plan to ensure that his or her dependants are taken care of financially, in their absence. An endowment plan is an investment as well as an insurance. Unlike term plans where the beneficiary will only receive a lump sum payment in case of the death of the policyholder, in an endowment plan you will receive the entire corpus of your investment at the end of your term. Along with being a good insurance plan it is also a great way to save for your future.

There are certain thumb rules to follow when deciding your life insurance cover. These are the major things that you should always consider when you’re buying any kind of life insurance. Take careful note of these when you make insurance purchases.

1.  Income: This is the first and foremost factor you should take into account while choosing the amount for your term or endowment policy. Your insurance cover should be sufficient for your dependents to sustain themselves if something unfortunate were to happen to you. Your insurance cover should be atleast 15-20 times your annual income.

2.  Debt: This is the second thing you need to consider. You don’t want your family worrying about loan payments when their grieving. Ensure that you term plan amount is sufficient to pay off any debt or outstanding loans you may have taken.

3.  Standard of living: Your term or endowment plan should be enough so that your family can maintain the same standard of living even when you can’t provide of them. Your standard of living means your monthly expenses such and maintenance charges, school or college fees and other expenses such as food, travel etc.

4.  Inflation: You need to consider the amount of inflation because your insurance will be used at a later date. Prices as they are today will change according to inflation. So what might be sufficient cover today may not be sufficient tomorrow.

5.  Future expenses: If you’re providing for your family you need to take into account any foreseeable expenses like higher education, medical expenses, business expenses or even wedding expenses to ensure that your insurance cover is sufficient.