Term insurance is a financial instrument in the hands of high-net-worth individuals. With the right kind of financial planning, you can utilise the benefits of term insurance to help build the future of your loved ones with ease. The typical preference for term insurance depends on your livelihood and family expenses. However, for people with high net worth, a 5 crore term insurance plan is ideal.
What is a term insurance policy?
A term insurance policy is a type of life insurance that allows you to purchase high coverage value for reasonable rates of premium. The tenure of your policy can be anywhere between 10-99 years.
When considering the coverage for your life insurance plan, you need to ensure that the amount matches the income vs expense ratio for your loved ones. For individuals with high net worth, this amount needs to be as high as possible because your income vs expense ratio would be on the higher side.
How to calculate the term insurance plan for your loved ones
To calculate the appropriate sum insured for your loved ones, you need to consider the following factors:
- The monthly expenditure includes utilities, groceries, etc.
- Any debts or lenders to pay back.
- Mortgages on the property, if applicable
- Taxes on properties (both assets and liabilities)
- Expenses towards education, business, etc.
- Rent or other similar expenses, if applicable.
- Rate of inflation.
Based on these annual expenses you can estimate an amount of coverage that would help your beneficiaries navigate a few months while they plan their finances going forward.
You must also consider the expenses of premiums to ensure that you get the right amount of coverage without affecting your current financial plan. To calculate the expenses in premium, you can use a term insurance calculator that factors in variables and helps you achieve as low a rate of premium as possible for higher coverage.
How to use a term insurance calculator?
The term insurance calculator is an online financial gadget that allows you to calculate your rate of premium for a certain amount of coverage for a specific amount of time. It takes into account several factors that affect the life insurance plan and determines the right rate of premium for you. Here are the variables that you will need to provide for a customized result:
- Annual Income
- Your residence area code, i.e, PIN code
- Consumption of Nicotine or tobacco-related substances
- Your gender
- Name and contact details
- Date of birth or age
- And occupation.
Once you furnish these details, the term insurance calculator can identify suitable term insurance plans that will most benefit your loved ones. You can choose the type of term plan that best befits the needs of your beneficiaries. Then, you can further use the term insurance calculator to determine the premium for your plan by furnishing the following choices:
- The sum assured, i.e., the amount of coverage you want to provide for your beneficiaries.
- The policy tenure, i.e., the number of years for which you want the policy to be valid.
- The premium tenure, i.e., the period during which you would like to make premium payments.
- The premium frequency, i.e., the regular intervals at which you prefer making payments towards your annual premium.
- The type of payout you would like your family to receive. It can be as regular income or a lump sum death benefit.
- Any additional riders on your term insurance plan.
Based on these factors, the term insurance calculator will divide the total premium payable annually into manageable amounts. If the premium seems too high, you can adjust the variables and compare plans. If the premium seems too low, you can always increase the sum assured to further enhance the future finances of your loved ones.
Why 5 crore term insurance is good for people with high net worth?
The rate of inflation affects the value of the Indian Rupee every year. Therefore, the amount that you think is enough currently will not be equivalent to the expenses in the future due to inflation. Ergo, a minimum 5 crore term insurance becomes a necessity to meet the inflation rate.
In the event of your demise during your policy tenure, your family receives the death benefit of INR 5 crores. You can enhance the coverage further with riders on your 5 crore term insurance plan. The premiums to pay will slightly increase with each additional rider.
If you survive the policy tenure, you can receive a very high maturity benefit. This amount would act as a savings investment fund with the best term policy for you. You could use the amount for personal financial planning in the future.
Conclusion
High net-worth households have higher rates of income vs expenses. You can choose a 5 crore term insurance plan to sufficiently cover the liabilities of your beneficiaries with ease while planning for the future. A term insurance calculator can help you determine the most profitable coverage for your loved ones based on your current financial situation.