When it comes to term insurance, there are no second opinions on how important it isSo, once you have decided to buy a term plan, the next question that comes to your mind is the budget you should allocate to buy the planWhile there is no fixed answer to this question, there are different factors that you can consider.

Factors to Help You Decide the Budget for Your Term Plan

Here are the few factors that can help you decide on the budget when you buy term insurance:

● Salary

Your salary is one of the most important factors that you need to consider before you buy a term plan onlineWhile everyone would wish to have an extensive coverage duration with a large sum assuredHowever, it’s your salary that keeps this wish in check.

Most financial advisors recommend that your life insurance plan should be 12 to 15 times your annual incomeAnd you can ideally keep 2.5% of your salary for premium payment for your online term insurance policy.

This number is arrived at by realistically calculating the premium amount you need to pay to have this sum assuredIn addition, it also considers the fact that your family needs to adequately meet their regular expenses in case you are not present.

For example, if your annual income is ₹10 lakhs, then you should buy term insurance online, which has a sum assured of ₹1 to 1.5 croreTherefore, the annual premium for this term plan would be approx₹18000 to 24000, which is roughly 2.5% of your salary.

● Nature of Coverage

When you plan to buy a term plan online, you need to consider the different variations in themHowever, the availability of these variations in coverage also depends on the insurance service providersFor example, with the Tata AIA life insurance term plan, you can include riders, and a return of premium of options, along with the basic life cover.

Every individual has their own financial goals and requirements, depending on which they can go ahead with different types of term plansFor example, if you already have health insurance from your company, then you would not prefer a health rider with your term insuranceMoreover, if you are a daily commuter, you would want to include the accidental rider with your basic term coverage.

However, all these also depend on your budgetThe term life insurance cost increases when additions are made to the base policyHowever, if you feel that you need a rider, you can stretch your budget and cut on some luxuries to include themMoreover, if your salary permits, you can definitely go ahead with additional riders, irrespective of whether you have them or not.

● Duration of Coverage

Your term plan budget also depends on the duration of the policyBut, again, there are many factors that can influence your budgetFor example, if you have just started earning and also have a loan (education or home loan), the duration, as well as the sum assured, will depend on it.

Moreover, if you do not have any loans and you already have a home for yourself, then the duration will depend on how long you want to cover your lifeUsually, young earning individuals take a 30-40 year term policy, which is usually till retirement age.

Key Takeaways

With all this information at your disposal, you now have a better idea about the choices you need to make, especially with a tight budgetHowever, there are some more things that you need to take into account before buying a term plan, one of the most important being the selection of an insurance providerIn addition, you need to check the insurance company’s claim settlement ratio along with its credibility.