Is a term insurance of Rs 1 crore enough for your family? Know the formula to calculate your true value..

Today, whenever we talk about term insurance, a cover of "1 crore" is considered a good cover. From advertisements to financial advisors, everyone talks about it. But have you ever thought whether this figure of 1 crore is enough for your family, or is it just a marketing ploy? The truth is that one answer cannot be right for everyone.

For some, a cover of 50 lakhs may be enough, while for some, even 2 crores may fall short. Therefore, instead of imitating someone else or just following a popular figure, it is better to understand your own needs. Here we will tell you a simple and accurate formula, by which you will be able to easily calculate how big a security cover your family needs.

Why is the '1 crore term plan' popular?

It has a psychological effect. One crore seems to be a huge amount, which gives a common man a feeling of security.

For insurance companies, this has become a standard figure, which is easy to promote.

Till a few years ago, the premium for a cover of Rs 1 crore was so low that it easily fit in the budget of most people.

But today, given the rising inflation, changing lifestyle, and increasing responsibilities, this figure does not fit everyone.

Formula to calculate the right term insurance cover

Instead of following a trend, follow these 4 steps to know your right value. Take a pen and paper and calculate with us.

Formula: Right cover = (A+B+C) - D

Now, let's know what these A, B, C, and D are.

A. Income Replacement (Household Expenses in your absence)
This is the most important part. Think about how much money your family will need every month to run the household if you are not around today. This includes house rent/EMI, children's school fees, ration, bills, and all other expenses.

A simple rule of thumb is: at least 15 to 20 times your annual income.

Example: If your annual income is Rs 10 lakh, you need a cover of at least Rs 1.5 crore (10 lakh x 15) just for income replacement. This amount should be enough so that if it is kept in the bank, the interest on it can cover the family's annual expenses.

B. Liabilities and Loans (To repay all debts)
Add all the loans or debts you have. You don't want your family to be burdened with loan repayments after you are gone.

Include: Home loan, car loan, personal loan, credit card dues, or any other borrowings.

Example: Suppose you have a home loan of Rs 30 lakh and a car loan of Rs 5 lakh remaining. So the total liability is Rs 35 lakh.

C. Big future goals (children's education and marriage)

These are the big expenses for which you are saving today. Like children's higher education or their marriage.

Estimate how much money you will need for your child's education after 15 years as per today. Add inflation to this as well.

Example: Suppose you will need a total of Rs 40 lakh for the education and marriage of your two children.

D. Your existing savings and investments (which you already have)

Now add all the investments and savings that you already have. This is the money that can be used for your family, so we will deduct it from the total requirement.

Include: Your FD, mutual funds, shares, PPF, and any old policy from which you are sure to get the money.

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