Two Hacks When You Don't Get The Term Cover You Want!

Term insurance is one of the most important investments that you make for your family’s financial protection. It is one of the ways in which you can ensure that your family doesn’t have to compromise on their dreams and lifestyle in your absence, which is why it is important that you buy your term insurance right after necessary due diligence. 

Just like you spend time deciding which features to choose, such as payment mode, increasing cover/constant cover, claim payout options, etc., you must spend snough time calculating the appropriate amount of sum assured for your family instead of simply relying on thumb rules. 

How To Calculate The Appropriate Cover Amount For Your Family?

If you depend on the '20x annual income' thumb rule, you might end up buying either a higher or a lower cover for your family. While buying a higher cover won't be a major problem (except for paying some extra premiums), if you buy a lower cover, your family might be left with insufficient funds in the future. 

Hence, it is crucial that you account for all your financial commitments like regular living expenses, major liabilities, and existing wealth/corpus to arrive at an appropriate cover amount that will be sufficient for your family in your absence (at least till such time as your kids/dependants grow up to be self-reliant).

You can calculate the exact term cover for your family using this formula - 

1. Living Expenses Fund (basic needs, groceries, monthly expenses, etc.)
2. ADD - Major Expenses Fund (huge responsibilities like children’s education or wedding)
3. ADD - Major Liabilities Fund (any large loans you’ve taken)
4. MINUS - Existing Funds (savings, fixed deposits, etc. multiplied by the appropriate risk factors)

You can do this calculation manually or use the Beshak TruMatch term insurance calculator. TruMatch is a term insurance recommendation engine that, after you answer a series of questions, recommends the exact amount your family will need. Not only this, but it will also suggest the features you should or shouldn’t pick and show a list of plans based on all these recommendations.

Term Insurance Eligibility Requirements

The maximum term insurance cover you can opt for depends on several factors like your age, occupation, health status, the insurer you want to buy it from, etc. One of the most important eligibility factors is your annual income.

Insurance companies use a factor to decide the maximum sum assured you can buy for term insurance. For example - 20X or 15X or 5X your annual income. And if you already have an existing life insurance policy, the cover amount of that policy will be deducted as well from the term cover you’re eligible for. So, if the amount you’re eligible to buy is less than what you’ve calculated for your family - then, they will likely be left short. In that case, you should try to build up a corpus amount equivalent to the shortfall. 

What can you do if you’re not eligible to buy the required amount of term cover for your family?

If you’re not eligible to buy the required term insurance cover for your family (as per the formula explained above), here are two things you can do - 

1️⃣ Choose the increasing cover feature

With the increasing cover feature, your term insurance sum assured will automatically increase at regular intervals throughout the policy duration. Your cover will grow gradually at predetermined rates until it reaches a maximum limit. 

There are several modes of increasing cover available with various insurance companies. Here are some common types - 

• Increase of 5% / 8% / 10% every year until the term cover becomes 2X.
• Increase of 5% / 10% every year until the end of the policy term.
• Increase of 5% every year till you reach the age of 55.

2️⃣ Buy the accidental death benefit rider

An accidental death benefit rider is another way through which you can increase your term coverage if you’re not eligible to buy the desired sum assured for your family. This rider will provide your family with an additional sum of money - over and above your base sum assured in case your death happens due to an accident. 

For instance, based on your calculations, INR 3 Crore will be an appropriate cover for your family. But due to eligibility restrictions, you're only able to purchase a term insurance policy for INR 2 Crore. So, you buy the accidental death benefit rider for INR 1 Crore along with your term plan. 

Now, while your family will only receive INR 2 Crore if you pass away due to any other type of death, if you die due to an accident, your family will receive the entire INR 3 Crores, (term insurance claim of 2 Crore + accidental death benefit rider cover of 1 Crore). 

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