Usually, term plans offer their best value when purchased early, as you can get a high sum assured for a low premium amount. If you are considering buying a term insurance plan in your 40s, it is essential to consider the coverage you will require. You want to prevent the situation where your family members suffer due to insufficient coverage (in sync with living costs and their needs) in the future. Let us first understand the meaning of term insurance, then look at some common methods you can use to calculate the right coverage amount for yourself.
What is Term Insurance?
Term insurance is the most basic form of life coverage. It gives you a comparatively higher coverage amount for a lower premium in most cases. There is a predefined sum assured paid out to your nominees in the event of your death within the policy period. However, if you outlive the policy tenure, there are no maturity benefits under the basic plan structure. You will have to keep paying the agreed premium at the agreed frequency for the chosen premium payment term. You can get tax deductions on your term insurance premium payments up to Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961. You can also add several riders to your policy for additional safety and protection. Some commonly chosen options include accidental death or disability, critical illness, etc. These will come with additional charges that will be added to your premium amount.
How to Calculate Life Cover?
Now, before buying term insurance in your 40s, when you are already in the middle stages of your career and life, you should consider the life coverage you require. Here is a guide to a few calculation methodologies. You can use one of these three methods to calculate the amount of term policy for your family.
A Simpler Calculation Framework
These are some methods to calculate the right life cover amount for your term plan. However, there is a general rule of thumb that you can use to decide the life cover required. That is considering a value of approximately 10 to 20 times your current annual income. This will cover most of your future expenses without any complicated calculations. However, this is not the most accurate method and may vary depending on various conditions. Also, keep checking your term coverage from time to time, as due to multiple factors, your future goals and expenses may change with time. You will thus have to either get your coverage enhanced at the time of renewal or purchase an additional term policy in this scenario.
