What is Term Insurance?
Term Insurance is a pure life insurance policy that provides financial protection to your family in case of your untimely death during the policy term. Unlike other insurance products, term plans offer high coverage at affordable premiums with no investment component.
Our Term Insurance Calculator helps you determine the ideal coverage amount (sum assured) based on your income, outstanding loans, future expenses, and family's financial needs.
How Much Term Insurance Do You Need?
The ideal coverage depends on multiple factors:
- Income Replacement: 10-15 times your annual income to replace earnings
- Outstanding Loans: Home loan, car loan, and other debts should be covered
- Future Goals: Children's education, marriage, and spouse's retirement
- Existing Savings: Subtract investments and savings from the total need
Term Insurance Coverage Formula
Ideal Coverage = (Annual Expenses x Years to Retirement) + Loans + Future Goals - Existing Assets
- HLV Method: Human Life Value = Present Value of future earnings
- Income Multiplier: Simple rule of 10-15x annual income
- Needs Analysis: Detailed calculation of actual financial needs
Example Calculation
Scenario: 35-year-old with Rs 15 lakh annual income, Rs 50 lakh home loan, 2 children
- Income Replacement (25 years): Rs 15L x 12 = Rs 1.8 Cr (present value)
- Outstanding Loans: Rs 50 lakh
- Children's Education: Rs 40 lakh
- Existing Investments: Rs 30 lakh
- Ideal Coverage: Rs 2.4 Cr - Rs 30L = Rs 2.1 Cr
Tips for Buying Term Insurance
- Buy Early: Premiums increase with age - buying at 25 costs 50% less than at 35
- Choose Right Term: Cover until retirement age (60-65 years)
- Adequate Coverage: Don't underinsure to save premium - family protection is priority
- Claim Settlement Ratio: Choose insurer with 95%+ claim settlement
- Review Regularly: Increase coverage after marriage, children, or home purchase
Frequently Asked Questions
What is the ideal term insurance cover?
The thumb rule is 10-15 times your annual income. For example, if you earn Rs 12 lakh/year, coverage should be Rs 1.2-1.8 crore. Add outstanding loans and children's education costs, then subtract existing savings.
Should I buy term insurance for my spouse?
Yes, if your spouse contributes to household income or manages the home. Even non-earning spouses provide economic value. Consider Rs 50 lakh - 1 crore coverage for a non-working spouse to cover household management costs.
Is term insurance premium tax deductible?
Yes, term insurance premiums qualify for deduction under Section 80C up to Rs 1.5 lakh. The death benefit received by nominee is also tax-free under Section 10(10D).
What happens if I survive the policy term?
In a pure term plan, you don't get any money back if you survive. That's what keeps premiums low. If you want returns, consider Term with Return of Premium (TROP), though premiums are 2-3x higher.
Should I choose monthly or annual premium payment?
Annual payment is usually 2-5% cheaper than monthly. If you have the budget, pay annually. Monthly is fine if annual payment strains your cash flow.
How does critical illness rider help?
Critical illness rider pays a lump sum if you're diagnosed with covered illnesses like cancer, heart attack, or stroke. This helps cover treatment costs while you're alive. It costs 10-15% extra but provides valuable protection.