Yes, a life insurance plan also comes with sum-assured benefits. However, in a life insurance plan, you can also get a maturity benefit on top of the sum assured. You will get a lump sum amount after your policy matures.
What is the Maximum and Minimum Sum Assured in Term Insurance?
A term insurance plan lets individuals secure their family’s financial condition in case of their untimely demise. Their nominees get the sum assured from the insurance company as per the policy terms.
Nevertheless, while signing such contracts, you should ideally compare the maximum and minimum sum assured in term insurance policies provided by different insurers. Simultaneously, you also need to determine how much sum assured will suffice your family’s future financial requirements.
What Is the Maximum Allowable Sum Assured?
The sum assured in a term insurance policy refers to the amount a nominee gets in case of the unfortunate demise of a policyholder. Generally, the maximum sum assured offered by insurance providers is 10 times the annual income of the policy holders.
An insurance provider generally offers their plans at different costs (premiums). With higher premiums, the sum assured increases. The maximum sum assured in a term insurance plan refers to the highest amount that you can secure as the death cover.
What Is the Minimum Allowable Sum Assured?
The minimum sum assured refers to the least coverage amount that an insurer will provide against a certain premium. When you choose a term plan with a minimum sum insured, you will have to pay the lowest premium to purchase and renew your plan.
Ideally, the minimum sum assured of the term insurance policy should be around at least 12-15 times of an individual’s yearly expenses, including loans. This way, he/she can ensure that his/her family remains financially well off even after his/her unfortunate demise.
Examples of Maximum and Minimum Sum Assured in a Term Insurance Plan
How to Choose the Right Sum Assured?
In the case of unfortunate demise of the insured individuals within the policy period, their nominees will get a fixed sum of money. Here are four major aspects that you need to check while deciding your sum assured amount:
- Financial Requirements of Family: You will have to decide how much your family would require to sustain their life and livelihood comfortably in your absence. This is why while choosing the minimum sum assured in a term insurance policy, you should ideally factor in your family's present and probable future annual expenses.
- Upcoming Bigger Expenses: Your family may encounter difficulties in paying for large one-time expenses like those of higher education, marriage, etc. If you have such upcoming expenditures, you need to ensure that the sum assured amount will help them to bear those costs.
- Professional Career Remaining: While deciding the minimum sum assured in a term plan, you must consider how much of your professional career remains. This is because the term insurance policy acts as a means of substituting your income and savings in case of unfortunate situations. Estimating your career’s remaining duration will help you understand how much your loved ones should ideally get to fulfil their financial needs.
- Liabilities: You also need to take care that your family members do not encounter financial challenges owing to your outstanding liabilities. This is why while choosing a sum assured, you must take into account your pending loans that will take longer to repay.
Formula to Determine the Sum Assured You May Need
You can also consider the following formula to get a basic understanding about the sum assured amount of your term insurance plan:
Sum Assured in a Term Insurance Plan = (10 x Annual Income) + Financial Liabilities
For example, if your annual income is ₹20 lakh and your pending loan amount is ₹ 50 lakh, you should opt for a sum assured of ₹ 2.5 crore.
To ensure that your family does not face any financial difficulty in sustaining their livelihood in case of your unfortunate demise, you must get a life cover that provides a sufficient sum assured. You can consider the above-mentioned aspect and formula to get an idea about the minimum sum assured in a term insurance policy.
FAQs About Maximum and Minimum Allowable Sum Assured
No, term insurance plans generally do not cover death due to natural disasters. Before purchasing a term insurance plan, you should ideally check the inclusion and exclusion criteria to understand when you will and will not get the policy benefit.
Yes, according to the Section 10 (10D), the entire death benefit can be exempted from any tax obligations. However, for this, the total premium towards the policy must not exceed 10% of the sum assured value in case the policy is purchased after 1 April 2012. The limit is 20% for the policies purchased before 1 April 2012.
You need to provide the following documents to get the sum assured amount:
- Original policy paper
- Filled in claim form
- Photo ID proof of nominee
- Bank account details of nominee
- Medical reports and death certificate
- Doctor’s statement.
Other Important Articles about Term Insurance Features
Other Important Articles Related to Term Insurance
- 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.