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.

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.

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.

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.

Also Read About:

• 5 Crore Term Insurance
• 10 Crore Term Insurance
• 10 Year Term Insurance

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

2. Consider Your Financial Liabilities

3. Evaluate Your Health and Lifestyle

4. Consider Your Estimated Working Years

5. Use a HLV Calculator

1. Young Earners

2. Small Business Owners and Entrepreneurs

3. Senior Investors

4. Those Looking for Supplementary Coverage

5. People with Loan Liabilities

6. Those Looking for Future Financial Planning

1. Financial Assessment

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

4. Term Duration

5. Rider Options

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.