Perhaps term insurance is one of the most reliable and simple solutions for securing your family’s financial future. However, many are faced with a dilemma: between a term plan for 1 crore or opting for a higher coverage of ₹2 crore. Both have their good points and depend on various factors, such as your lifestyle, financial responsibilities, and long-term goals.
Understanding Term Insurance
Term insurance is a pure protection plan in which your family will receive financial support due to your untimely death. While most life insurance policies do not have maturity benefits, the coverage amount provided by term insurance is high and can be availed at affordable premium rates.
The beauty of term insurance lies in its simplicity: you pay a regular premium, and in return, your family receives a lump sum payout if something happens to you during the policy term. This payout, also known as the sum assured, can range from a modest amount to a significant ₹1 crore or ₹2 crore, depending on your choice.
Why the Sum Assured Matters
The sum assured forms the very basic backbone of any term insurance policy. The problem is such that while, on one hand, a lower sum assured may leave the family struggling to make all the repayment of financial commitments, a too-high cover can also strain the pocket due to higher premiums paid. Thus a balance is absolutely necessary.
Let’s compare how much more adequate the affordability of a 1 crore term plan is against ₹2 crores, as also coverage adequacy, among others.
₹1 Crore Term Plan- Who Does it Work Best for?
The very first step a beginner makes on his or her financial planning route is choosing a term plan with 1 crore coverage. Now, this sum is aptly enough for someone like:
Young professionals with minimal liabilities: This applies to the young guns in the 20-30 age group who are probably single or newly married and have very few financial dependents and liabilities. Hence, ₹1 crore should suffice as a good cushioning.
- Slightly Limited Existing Liabilities: Assuming you have some minimal or absolutely no existing liabilities and your close family’s existing short-term demands are relatively lesser, a term plan of ₹1 crore should be sufficient.
- Affordable Alternative: One more significant advantage in the case of a ₹1 crore term plan is that one can get good coverage at reasonably affordable prices when compared to coverages at relatively higher prices.
₹2 Crore Term Plan: How Much Do You Require?
If you are someone who accrues greater liabilities and has lots of long-term goals, then it is always advantageous to consider a ₹2 crore term insurance plan. The reasons to do so are as follows:
- Multi-dependent Family Members: In case there are dependent ageing parents, a non-working spouse and children, you would require more financial security from a ₹2 crore policy during your absence in case of some untimely death.
- Huge Liabilities: A person with huge loans like a home loan, car loan, or business loan has a term plan of ₹2 crore, thereby not burdening the family to pay off the debt.
- Future Goals: Such a higher amount assured ensures that the family can very easily meet long-term goals in the future for children’s higher education or marriages without any stress.
- Inflation protection: With the rise in inflation, the purchasing power of money is decreasing with time. A ₹1 crore cover sounds good today; however, down the line at 20 or 30 years, it won’t be even close to required. A ₹2 crore provides an extra shield against inflationary pressures.
Difference in Premium Comparison: What Is the Cost Variation?
The premium for term insurance increases with the amount covered. However, the incremental cost of doubling your cover from ₹1 crore to ₹2 crore is usually less than what you would expect. Insurance companies offer competitive pricing structures. Higher coverage can prove surprisingly economical if you start young.
Example:
- A 30-year-old non-smoking male would pay an annual premium of about ₹7,000 for a ₹1 crore term plan for 30 years.
- For a term plan of ₹2 crore, the premium might be around ₹13,000 roughly double the cost for double the coverage.
This slight premium hike often justifies the extra security that higher sum assured provides.
How to Decide Between ₹1 Crore and ₹2 Crore
Current and Future Financial Requirements: Estimate your family’s current lifestyle expenditure and future financial goals. These may include education expenses, healthcare expenses and, in some cases, retirement needs also.
- Liabilities: Include all current outstanding debts as well as future liabilities. The sum assured must suffice to pay off these liabilities but still provide for your family’s sustenance also.
- Inflation: Anticipate how inflation will eat into money. A ₹2 crore cover will be a much stronger cushion against inflation eating into money over time.
- Affordability: One may need the right amount of cover, but the same cannot come at the cost of creating pressure on finances. Opt for a plan that ensures premiums do not pinch.
- Age and Health: The younger and healthier you are, the lesser will be your premiums. Getting a higher cover at an early age will help you save substantially through the term of the policy.
Innovative Strategies: Laddering Your Insurance
If you are stuck between ₹1 crore and ₹2 crore of term insurance, then plan a laddered cover. Laddering refers to planning of multiple term insurance policies over time with varying cover amounts and durations. For example,
- A ₹1 crore for 30 years to cover long-term expenses such as your child’s education.
- Another ₹1 crore for 15 years to take care of your short-term liabilities such as home loan.
This will allow you to optimize your premium outflow while tailoring your coverage to your financial needs.
The Verdict: Which One Do You Need?
Whether a ₹1 crore or a ₹2 crore term insurance should be chosen, is purely at one’s personal discretion. ₹1 crore Term plan is perfect for those people having fewer liabilities and tight budget lines. For the people having heavy liabilities and serious dependents with long-term goals, ₹2 crore Term Plan is most appropriate.
Remember that the term insurance for your family should be one that aligns with your family’s financial goals, provides adequate protection, and fits comfortably within your budget. Keep reviewing your coverage needs and update your policy to reflect changes in your life.
Conclusion:
One of the sound financial planning steps is investing in term insurance. Whether you are considering a term policy of 1 crore or scaling up to ₹2 crore, the bottom line is that your loved ones are kept financially sound, regardless of what the future has in store for them. So, make the time required to consider how many term policies you require, compare policies, and get your financial advisor on board if necessary. After all, peace of mind for yourself and your family comes at no price.
