You may have encountered few advertisements on different social media platforms promoting term life insurance of 1 crore. The purpose or construct might differ in their advertisements, for example,
- Secure your family with 1 Crore term life insurance
- Buy 1 Crore term life insurance at 500/- per month
The basis of most marketing strategies is similar in promoting the sum assured of 1 crore. Though, their rationale and modes of expression may differ. The message, overall can be emotionally driven, pricing based or service oriented. This however raises the concern, if the sum assured of 1 crore term life insurance is enough for your family when you aren’t around. The concern itself raises many serious questions apropos the welfare of the family.
- Will the amount suffice for your family for the rest of their lives?
- Will your children get the level of education they deserve?
- How will your family pay the outstanding debts?
- Will the amount offer a good standard of living for your family?
- Will your spouse be forced to rely on your children for monthly expenses, after retirement?
Most families seem satisfied with the term insurance amount of 1 Crore however, this is due to their lack of awareness and research in the aspect itself.
Let me give you a clear example in order to put things into perspective.
Sumit is a 38-year-old IT professional married to 35-year-old Swati who is a housewife and takes care of the family. The monthly expenditures of the couple are as follows:
- Household Expenses – 40,000
- Personal Care Expenses – 10,000
- Total Expenses -50,000
They have a decent style of living and desire to maintain their lifestyle after retirement. Presently, they do not have any loans repayable. They have invested in PPF, mutual funds and fixed deposits, in all compounding to assets worth 25 Lakhs. Assuming the life expectancy of 85 years, with monthly expenses of 50,000, Sumit will require life insurance cover of not less than 2.35 Crores, plummeting to 2.1 after taking the assets into account.
This calculation is based on the assumption that the amount received would generate 1% returns on inflation, that is, if the inflation is 6%, the returns would be 7% and if the inflation is 4%, the returns would be 5%.
Ipso facto, If Sumit continues the term insurance policy of 1 Crore, his family would be able to carry on with a decent lifestyle for not more than 25 years, if he passes away in the present time. This is after accommodating the amount of the assets worth 25 Lakhs.
Now, let’s modify the example a bit. If we add the various loan amounts-
- Household Expenses – 50,000
- Personal Care Expenses – 10,000
- Home Loan – 40 Lakhs
- Car Loan – 5 Lakhs
- Total Expenses -50,000
With the conditions notwithstanding, Sumit will require life insurance cover of 2.8 Crores. Considering his assets of 25 Lakhs, the net requirement would be 2.55 Crores.
If Sumit continues with the existing term insurance policy of 1 Crore, his family would be able to survive only for next 15 years if he dies today. This includes the value of the assets and repayment of outstanding loans.
Let’s proceed with further modification of this example.
Let`s hypothesize that Sumit and Swati have a child who is 5 years old. Their expenses are as follows:
- Household Expenses – 50,000 (Additional 10,000 for child care expenses)
- Personal Care Expenses – 10,000
- Home Loan – 40 Lakhs
- Car Loan – 5 Lakhs
- Child Higher Education Goal – 20 Lakhs, as per the current figure.
- Total Expenses -60,000
With monthly expenses of 60,000 and life expectancy of 85 years, Sumit will require life insurance cover of 3.45 Crores; subtracting the total assets, the net requirement would be 3.2 Crores.
Eventually, If Sumit opts for an existing term plan of 1 Crore, his family would be able to survive only for next 10 years if he dies today. This is of course after repaying the home loan, car loan, earmarking 20 Lakhs for their child’s education and taking 25 Lakhs of assets into consideration
Is 1 Crore term life insurance enough?
Addressing the question, it depends on your monthly expenses, assets, liabilities and goals etc. If your monthly expenses amount to 27000 (inflation adjusted), with 25 Lakhs worth of assets and no liabilities, then it is logical to choose the One crore term life insurance plan.
Your liabilities should be scrutinized and added in the term plan. This is not the only assumption.
- Your health insurance should be in place. (Yearly premium need to be provisioned)
- Also, this amount does not cover for any emergency.
Conclusion
In this modern age of ever-rising inflation, one cannot depend on just 1 Crore term life insurance for future security as the amount may not be sufficient. Companies are promoting the scheme just because the figure appears to be massive and they are very well aware of the potential customer’s psychology. In fact, it’s more of a marketing strategy as you can see that companies produce an example of a person aged around 30 and make it appear realistic. Companies do this to create a psychological impact in people’s mind so that they are invited to buy the scheme.
You think it sounds good when you buy the 1 Crore term plan, but your requirement can be much more than that. In some cases, you may not need term insurance cover at all as you might have more assets than the life insurance required to you.
So, it is always better to check your requirements. You can do that by clicking on the link
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