Importance of sum assured in Term Insurance Policies
The more you live the better lifestyle you aspire for. When you buy insurance, the first thing that comes to your mind is that it shouldn’t be insufficient for my family. Therefore, the sum assured is very important task of your policy. Sum assured is the amount which policyholder’s beneficiary will receive in case insured die during the policy period. Often people do lot of brain scratch, calculations and workouts to come at an amount for which they feel getting insured for. Usually expert say that the sum assured should be around 10 times your annual income or 15 times your annual expenses. Those who have debts like home loan, education loan, do not forget to consider these factors while estimating their coverage.
Whether you buy “term,” “whole life” or “universal life” insurance will be dependent on two primary factors:
Term insurance provides protection for a predetermined period of time between 5-20 years or until a certain age depending at what age you pick one from the basket. With men and women living considerably past their age, if you’re looking for longer-term protection, term policy is the security you should bank upon.
With term insurance, when the term of the contract expires your coverage ends unless you renew the term. Each time the term is renewed, the premium is adjusted upwards. Thus, it is as good as an expense like rent for your house. While it will give you comfort and peace of mind, it accumulates no residual value. If you want coverage to last your lifetime or want to use insurance to build assets, term insurance isn’t the right choice. The policy is straightforward. Higher the premium high is the protection but no returns after the tenure. It’s like shielding your family against the battle with your death.
Whole life and universal life insurance are permanent, remaining in place until death. With whole life policies, the insurance company does the investing. With universal life, you have much more control over the types of investments the money is going into. If term insurance is rent, then permanent insurance is as good as mortgage payment; in the early years there isn’t a lot of asset accumulation, but over the long term it will grow nicely.
The next thing to look at is how long you’ll need the coverage. Term insurance should be built in such a way that it gives the coverage till your family clears the pending debt and capable to stand on its feet if anything uncertain happens to you. Ideally it should be purchased keeping in mind average of around 60-65 year age so that your family get sufficient corpse amount to build their future.
Remember, the premium on your permanent insurance will remain the same, while the premium on term will rise each time the policy is renewed. Therefore, initially the cost of term policy will appear far less expensive and so financial gurus advice to take an early policy. Also, in some policies, you can buy the right to convert your term policy to a whole life policy at a later date. So if you decide to start off with term insurance to protect your young family, and then decide to convert to a whole life policy when your needs change with more money in hand, you can shift to next gear in the race of life against death.
Get several quotes, make sure you’re comparing orange for an orange, and buy the policy that best meets your needs. Suppress your urge to over-buy, but don’t comprised yourself, and your family for short either. Evaluate your future earning potentials and your family’s present needs, take inflation into account, be realistic and then buy enough insurance to meet your needs.