How much Decreasing Term Life Insurance coverage do you need?

How to cancel the LIC policy within grace period?How to cancel the LIC policy within grace period?

How much Decreasing Term Life Insurance coverage do you need? Decreasing term life insurance, also known as mortgage life insurance, is a kind of insurance that you buy to cover your loans and mortgages. As a result, the value of your decreasing plan should be equal to the loan amount and the term of the policy should be similar to the loan repayment term. Since a decreasing term plan doesn’t have a return component and the sum assured keeps decreasing throughout the policy period, it makes no sense to buy such a plan if you do not have a loan or a mortgage. These kinds of life insurance policies are also considerably cheaper and so it becomes easy for people from all walks of life to buy decreasing term plans.

What is the amount of decreasing term life insurance coverage I should opt for?

To calculate the amount of decreasing term life insurance coverage you need, you first need to calculate the total amount of money you owe to the money lenders. Then, you need to see how much money you payback every year. These are the two factors that will help you in knowing exactly how much decreasing term life insurance coverage you need. Take a look at the table below:

Mortgage/Loan
Total Rs. 80 lacs
Monthly EMI Rs. 20,000
Yearly EMI Rs. 2,40,000
Duration 35 years

 

Decreasing term coverage
Total Rs. 80 lacs
Yearly decrease of face value Rs. 2,40,000
Duration 35 years
Yearly Premium Rs. 10,000

 

So as you can see from the comparison above, the value of the decreasing term plan should be equal to the value of the mortgage or the loan. You can also see that the sum assured of the term plan decreases at the same rate as the decrease in the loan amount. The premium, however, remains constant throughout the policy period.

Will buying extra decreasing term coverage be of any help to me?

There is no point in buying a decreasing term plan of a higher value than that of your mortgage. This is because a decreasing term life plan has no other function but to cover a loan or a mortgage. So if you do not have a mortgage, do not buy a decreasing term plan. Similarly, it would be of no use to buy a decreasing term plan that has a sum assured higher than your loan amount. Always remember that a term plan has no return component and if you outlive the policy period you will not get anything in return. So buy a policy for as much as required and invest any surplus money you may have in other financial tools such as mutual funds or endowment plans.

 

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