Simplifying Life Insurance in India
Should You Buy a 2 Crore Term Insurance Plan?
A well-calculated insurance coverage ensures that your family is safeguarded against financial turmoil in case of your untimely demise. Thus, deciding whether to invest in a 2-crore term insurance plan is a significant financial decision that requires careful evaluation of various factors.
While a 2 Crore Term Insurance can be a prudent choice for some investors, however, given today’s lifestyle and inflation, might not suffice for most others. As we go through the details about a 2 Crore term insurance plan, let's explore how it can suffice the coverage requirements of an average Indian investor.
This article delves into the critical aspects of choosing a 2-crore term insurance policy, weighing its benefits against your financial goals and insurance needs. If you're contemplating securing your family's future with a sizable term insurance plan, read on to understand if a 2-crore policy is the right choice for you.
What is a 2 Crore Term Insurance?
A 2 Crore Term Insurance promises a financial coverage of 2 Crore to the beneficiary in case of unfortunate demise of the life assured. In simple words, a 2 Crore term insurance provides a sum assured of 2 crores, thus helping the dependents to take care of their financial obligations.
Since it’s a term insurance plan, it provides only death benefit and no maturity value in case the life assured survives the policy term.
How Does a 2 Crore Term Insurance Plan Work?
Here is how a 2 Crore term insurance plan works:
- Sum Assured: It provides a coverage of 2 Crore rupees to the beneficiary in case of the policyholder’s unfortunate demise during the policy term.
- Policy Term: The policy has a specified term, chosen when buying the policy during which the coverage is active.
- Premium Payments: The premium amount, frequency and tenure can be chosen by the policyholder as per their preferences.
- Death Benefit: Since it’s a term plan, the death benefit is the entire sum assured i.e. 2 crores. This death benefit is paid to the beneficiary in case of the policyholder’s unfortunate demise during the policy term.
- Maturity Benefit: If the policyholder survives the policy term, there is no maturity benefit since this is a term plan.
Let's take an example to understand the working.
Mr. Rohan, aged 30 years, opts for a 2-crore term insurance plan with a policy term of 30 years. He chooses to pay an annual premium for the coverage. Based on his age, health status, and the term of the policy, let's assume the annual premium is calculated to be ₹25,000.
The policy term is 30 years, which means Rohan will be covered until he turns 60. The sum assured, or the amount that will be paid to the nominee in the event of Rohan's death during the policy term is 2 Crore.
Now, let's see the two different scenarios that might happen in this case:
Scenario 1: Rohan survives the policy term
If Rohan survives until the end of the policy term (30 years), the term insurance plan does not pay out any maturity benefit, as it is a pure protection plan without any investment component.
Scenario 2: Rohan passes away during the policy term.
Rohan meets an unfortunate accident and passes away at the age of 45. In this case, his nominee would file a claim with the insurance company. Upon successful processing of the claim, Rohan's nominee would receive the sum assured of 2 crores. This amount can be used by the family to cover living expenses, pay off debts, or invest for future needs, ensuring financial stability despite the loss of the primary earner.
Is a 2 Crore Term Insurance Plan Enough for You?
Although a figure of 2 Crore seems huge, however, considering the financial requirements, it might not always be sufficient. It is often suggested to buy coverage 10-15 times your annual salary. However, given our upgraded lifestyles and ever-increasing inflation, it might not always be sufficient.
A correct evaluation of the required sum assured involves many factors, such as family income, expenses, future goals, inflation, loans and liabilities, among many others. You must also factor in your family's regularly increasing financial requirements.
A more accurate assessment can be done by the Human Life Value calculator that considers all the above factors.
Let's consider the scenarios below to understand if a 2 Crore term plan is enough.
Case 1: Mr. Rajveer
Mr. Rajveer was 26 years old and had retired parents as dependents. At that time, he had an annual income of 15 lacs. He planned to marry in another 2-3 years and buy a house afterwards.
Foreseeing the future responsibilities, he bought a 2 Crore term plan, with a tenure of 20 years, as a financial cushion for his dependents. Unfortunately, at the age of 42, he suffered a cardiac arrest. At that time, he had a dependent wife, two kids aged 10 and 7, an outstanding home loan of Rs. 80,00,000/- and dependent parents.
Considering the above liabilities, adding the future significant expenses like the kids’ higher education, a sum of 2 Crore was insufficient, and Mr Rajveer should have reevaluated it once his responsibilities increased.
Case 2: Mr. Sudheer
Mr. Sudheer had retired parents as dependents. He lived in his hometown in the family house and thus never planned to buy a new house.
When he got married at the age of 30, he decided to buy a term plan of 2 Crore for 20 years. His income at that time was 15 lacs per annum.
Unfortunately, at the age of 40, he passed away due to an accident. At that time, he had dependent parents and a young son of 8 years. However, his wife was earning, and he had no significant liabilities like a home loan. His son’s education was one significant expense that needed to be taken care of. Mr Sudheer also had considerable savings since he was an active investor across different investment instruments.
In the above case, a term plan of 2 Crore might be sufficient given that Mr Sudheer had fewer liabilities and more assets.
The one golden rule to having sufficient coverage is to “Review Your Term Insurance Every 5 Years” to take care of all your increased liabilities and expenses. A periodic review of your term plan ensures it aligns with your evolving financial situation. Consider revisiting the policy if significant life changes occur, such as marriage, childbirth or career advancements.
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How to Choose the Right Life Coverage for Yourself?
Choosing the right life coverage is essential for securing your financial future and providing peace of mind for you and your loved ones. What is that exact figure that you should choose to have a sufficient life coverage?
Let's find the answers:
1. Assess Your Life Goals
Understanding your life goals is the first step in choosing the right life coverage. Whether it's providing for your family, covering your children's education, or leaving a legacy, your goals will be the primary factor in deciding the type and amount of coverage you need.2. Consider Your Financial Liabilities
Take into account your financial obligations, such as mortgages, loans, and any debts. The life coverage that you decide should be sufficient to cover these liabilities, ensuring your family doesn't inherit your financial burdens if anything happen to you.3. Evaluate Your Health and Lifestyle
Your health and lifestyle can significantly impact your life insurance premiums and coverage options. Smokers, or those with pre-existing health conditions, may face higher premiums. Being honest about your health will help you find the most suitable coverage.4. Consider Your Estimated Working Years
Reflect on how many years you plan to work before retirement. Most of your financial goals ideally must be completed during these years. This will help determine the duration of coverage you need. Also, you would be better able to handle the premium payments during these years. Ensuring your policy covers you until you retire can provide financial stability for your dependents.5. Use a HLV Calculator
Utilizing a human life value calculator can help quantify your financial contribution to your family by considering your income, expenses, debts, and investments. It considers all the above discussed and more factors to give you a better estimation of the required coverage.Benefits of 2 Crore Term Insurance Plan
Here are the major benefits of a 2-crore term insurance plan:
1. Financial Security for Family
Ensures your family's financial stability in your absence, covering daily expenses, debts, and future goals like education.
2. Affordable Premiums
Despite the high sum assured, premiums are relatively low, especially if purchased at a younger age, making it a cost-effective choice.
3. Tax Benefits
Premiums paid and payouts received are eligible for tax deductions under Section 80C and Section 10(10D) of the Income Tax Act, enhancing savings.
4. Supports Key Life Stages
Adequate coverage to support your family through key life stages, including children's education, marriage, and spouse's retirement.
5. Debt Repayment
In the event of untimely death, the sum assured can help in repaying outstanding debts, ensuring your family's financial independence.
6. Riders
Offers the flexibility to enhance coverage through riders for critical illness, accidental death, and disability at a nominal extra cost.
7. Peace of Mind
Provides peace of mind knowing your loved ones are financially protected against life's uncertainties, allowing you to live stress-free.
8. Flexibility in Payout Options
Allows nominees to choose how they receive the death benefit - lump sum, monthly income, or a combination, suiting their financial situation.
Who Should Buy a 2 Crore Term Insurance?
1. Young Earners
Young earners who have just started earning and are responsible for dependents should consider a 2 Crore term plan to provide a substantial financial cushion for their loved ones in the event of their demise.2. Small Business Owners and Entrepreneurs
Entrepreneurs and business owners work on credit most of the time. To cover the responsibility of some credit of an equivalent amount, they can safeguard their business and family with a 2 Crore term plan, ensuring business continuity and family well-being.3. Senior Investors
Senior people, especially the ones nearing retirement whose major life goals like house purchase and kids’ education are over, can look at buying a coverage of 2 Crore. This will provide financial protection to their dependent spouse and others in case of their unfortunate demise and take care of any pending milestones like their children’s marriage.4. Those Looking for Supplementary Coverage
One might have a certain amount of cover from their employer or an already purchased term plan during their younger days. During periodic reassessment, they realised they needed a higher sum assured for sufficient coverage. In such a case, they can buy a 2 Crore term plan as an additional cover.5. People with Loan Liabilities
Individuals with substantial loans, such as home loans, can buy a 2 Crore term plan to cover these liabilities and prevent them from becoming a burden on surviving family members in case of the unfortunate demise of the borrower.6. Those Looking for Future Financial Planning
Those who envision a financially secure future for their loved ones should opt for a 2 Crore term plan. One might have calculated that their kids would require a certain sum for their higher education. They can buy a 2 Crore plan covering their kids’ education if other liabilities are covered already.Factors to Consider Before Buying a 2 Crore Term Insurance Plan
1. Financial Assessment
The most crucial factor is determining your coverage correctly. Evaluate your personal requirements, the current liabilities, future expenses, and the required amount for safeguarding your family. Assess if your chosen term plan aligns with your financial goals.2. Claim Settlement Ratio
The primary function of insurance is to provide financial support to the dependents in case of unfortunate demise of the life assured. Thus, claim settlement is highly important.
A claim settlement ratio reflects the percentage of claims settled by an insurer in a particular year. Thus, a higher claim settlement ratio means a higher likelihood of your claim being settled by the insurer.
3. Premium Affordability
Check if the premium fits your budget. You can research across different insurers for the same. Accordingly, decide on regular pay, single pay, or the various kinds of payment frequencies like annual, biannual, quarterly, or monthly.4. Term Duration
Choose a policy term that aligns with your financial responsibilities. If you take this plan to cover some loan, you can choose a term equal to the loan duration. Similarly, if it's for coverage during your early earning years, you can choose a shorter term because you'll need to reevaluate it once your responsibilities go up.5. Rider Options
Check the rider options in the policy. Customizing your policy with suitable riders can enhance the benefits of your policy and thus boost financial protection for your dependents.6. Policy Exclusions
Familiarize yourself with all policy exclusions so that it doesn't come as a surprise when the need arises. Being aware of the exclusions where your policy will not pay out ensures realistic expectations and informed decision-making.
Choosing a 2 Crore term plan is a significant decision that requires careful consideration. Remember, it's necessary to evaluate the right sum assured required. A well thought out term plan not only provides substantial financial protection for your loved ones but also offers peace of mind in the face of life’s uncertainties.
FAQs About 2 Crore Term Insurance
How Much Does a 2 Crore Term Insurance Cost?
When Should I Discontinue my Financial Coverage?
How often do I need to pay premiums for my 2-crore term insurance policy?
What is the minimum salary for 2 crore term insurance?
What is the best age to buy a 2 Crore term plan?
What is section 45 in insurance?
Can I buy 2 term insurance?
What is the eligibility to buy a 2-crore term insurance?
How can I buy 2 crore term insurance plans?
Is there a free-look period with the term insurance plan for 2 Crore?
What happens if I don’t die during the policy term?
Which riders are available with 2 crore term insurance?
What is the minimum entry age for 2 crore life insurance policy?
Can I buy the best term insurance plan for 2 crore Online?
Is the 2-crore term insurance plan tax-free?
Is a medical checkup necessary to buy Rs.2 crore term insurance?
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Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
