3 Demerits of Not Choosing Adequate Sum Assured

47

With term insurance, you can prepare your loved ones against various financial uncertainties in life. But the right selection of the best term plan in India requires a thorough understanding of different insurance-related terms, one of which is the sum assured.

Best term plan in India
Image Source : Shutterstock

Sum assured under the best term insurance plan refers to the pre-decided amount payable to you or the policy nominee when the insured event occurs. The chosen insurer guarantees to pay the sum assured, provided you pay the premiums on time. It is often observed that many people do not think twice about selecting the sum assured. They make a random decision of an amount that seems too large, not considering if it would be sufficient to sustain their family’s needs in their absence.

If you are searching for the best term plan in India, you might have thought how much sum assured you should select. The need for adequate sum assured under the best term insurance plan can be realized from the contrary instances, i.e., situations that can occur with the wrong selection of sumassured.

Here are a few instances you may face with insufficient sum assured:

1. Financial Burden Over Your Loved Ones

Image Source: Shutterstock

Consider the situation when you select the sum assured of Rs.20 Lakhs under the best term plan in India. You also know about your kid’s plan for higher education in the time ahead. In case something uncertain happens to you, your family will get the sum assured to meet their regular expenses. If the higher education plans come into the picture, it would be difficult to replace the lost income. A situation like this can ultimately result in financial stress.

One way to prevent it from happening is to assess your needs before selecting the sum assured under the best term plan in India. Given the current inflation rate, the sum assured should cover up your family’s income in the later years. Alongside, you should know about different types of investments you can opt for financial freedom.

2. Inability to Fulfil Life Goals or Dreams

When the uncertainty dawns upon individuals, the need for the hour calls for meeting the basic needs, no matter if it requires various dreams to get shattered. You and your family might have dreamt of buying a bigger home, living retirement years while traveling across the globe, or establishing a business with your hard-earned savings. In case of the loss of a breadwinner in the family, all these dreams take the side stage in most cases as there is no room left for them financially.

You can ensure that your loved ones can achieve all their life goals by selecting a sufficient sum assured under the best term insurance plan carefully. Take into account the financial aspect of various dreams and how much money your family members would need if something happens to you.

3. Lack of Funds to Repay Existing Debt

To fulfil various financial obligations in life, it has become common for people to borrow loans, be it a personal loan, home loan, or a car loan. All such borrowings have a long payback period and require a family member to take responsibility for loan repayment if something happens to the borrower.

Buying the best term plan in India won’t suffice if you choose an inadequate sum assured. The death benefit under life insurance that the policy nominee will receive will not help repay such debts. When there is a dire need to arrange money to make ends meet, such debts only become the cause of stress.

Hence, you must consider existing loans as a parameter to calculate the right sum assured. Use an online insurance premium calculator to get an idea of how the premium varies when you increase the sum assured.

What Matters the Most While Selecting the Right Sum Assured?

  1. Age

The premium that you need to pay to buy the best term plan in India depends on age and sum assured. Considering your current age will help you gauge how much sum assured you should choose.

For instance, if you are in your 30s but facing certain health issues, you can select the base plan sum assured along with a critical illness rider for complete protection.

2. Income

While buying life insurance is essential for everyone, not every individual invests in it. One reason is their lower income. When budget becomes a significant factor in planning for life, the need for a life cover often gets ignored.

A lower income should not stop you from ensuring financial security for your loved ones. It is because you can select a budget-friendly plan by striking a balance between affordability and adequacy of sum assured.

3. Lifestyle

Lifestyle is often considered synonymous with expenses. The more enhanced lifestyle you would like to live, the higher will be the expense chart. However, another side of considering your lifestyle is the level of stress you face regularly. For instance, if your business or job causes a lot of stress, you should select a higher sum assured owing to the greater risk to life.
Keep in mind that your decision to buy the best term plan in India will have a long-lasting impact on the lives of your loved ones.