New Delhi | Santosh Aggarwal: Buying a term life insurance is crucial as it helps to look after the dreams of your family that you have planned for them. However, a recent survey has revealed that most of the people buy term life insurance to save tax and death benefit.

No one can question the fact that buying a term life insurance is a good idea to save tax and death benefit but it has some other benefits as well. Buying term insurance can not only protect your family’s finances but also provide coverage from accidents, health issues and other uncertainties.

So here three things that you should keep in mind before buying a term life insurance:

Calculate the correct insurance cover that you would need

One of the things that you should keep in mind before buying a term life insurance is how insurance coverage would you need in the future. For this, there’s just a simple rule that the death benefit of your policy should be 7 to 15-20 times of your annual salary.

However, you should always ask the insurance company about what will be taken into consideration to consider your sum assured before buying a term life insurance. Another fact that you should consider is how much retirement corpus you would like to leave for your spouse on his or her retirement.

According to experts, another golden rule for calculating the correct insurance cover is -- 300 times your monthly expenses (minus EMIs) plus your outstanding liabilities and three times the current cost of the goals.

Select the right policy term

After calculating the insurance cover, you need to select the correct policy term for yourself and decide how long you need the assurance. Neither, the tenure should not be too little as your policy might lapse before you fulfil your financial obligations nor it should be too long.

To solve this issue, there’s just a simple rule and you should always buy term insurance for the period as long as you feel that you will continue to work and earn money. However, if you are thinking of a will and want to leave something for your legal heir, then you should invest in a full-term life insurance plan as gives you cover for 99 years and above.

Select the correct payout options

Before buying life term issuance, you should also think about the payout options. A payout option includes instalments and annuities, retained asset accounts and lump sums.

Generally, the option of paying in instalments in considered better for those who cannot make big financial decisions. In this, the beneficiary receives a part or percentage of the total sum assured as a lump sum and the remaining amount is provided as a monthly payment in a pre-determined period. Generally, this period is for 15 to 20 years.  

(Disclaimer: Santosh Aggarwal is the chief business officer of life insurance at The views expressed in the above story are of the author)

Posted By: Aalok Sensharma