How much term insurance do I need?

Hi today will try to answer another common question which is asked to us – How much term insurance should I actually buy? 
 
There is no straight answer to this but before getting into that let’s try to understand why one needs term insurance. The basic purpose is to provide financial security to those who are dependent on your income, in the event of your untimely death. In case there is no one financially dependent on you, you really don’t need to take any form of life insurance. There is no one to protect because none of them are financially dependent on you.
 
Now in case you have people who are financially dependent on you, it becomes very important to take a proper term insurance cover. So if you have to take a term insurance plan the important question is “How much term insurance should i take?”
 
There are quite of you ways to go about calculating this amount which involves knowing your income, your expenses, the savings which you have, the rate of inflation etc.. 
 
I would rather go with a very simple income multiplier – take a cover of 20 times your current annual income. As your income increases you can actually take another plan to add to the total cover that you have. So let’s take an example – suppose you are having an annual income of 10 lakhs. That means if you apply the twenty times multiplier you need a cover of about two crores. Now in case of your untimely death your nominee will get this two crores. Let’s again assume that your nominee invests this two crores into an FD which is given a rate of return of around 6%. So basically your nominee will get an annual income of around 12 Lakhs per annum. Now this is slightly more than what your current income is if 10 lakhs. Of course it is an assumption that your nominee will get the 6% rate of return forever –  may may not happen because the rates of FD might vary but that’s an assumption we work with. Also the value of this 12 lakhs, 10 years from now would not be the same. But it would be safe to assume that this lump sum amount is sufficient to take care of the immediate future or may be even five 5 – 10 years from now. So that’s the assumption that we are moving with. So if you’re having an income of 10 lakhs and your 35 years of age and you want to take a cover of 2 crores for 35 years, the premiums will be in the range of 22 – 28 thousand rupees and you get a spectrum of brands to choose from. Ii would assume that this Rs. 20,000-25,0000 per year is a good enough amount which you should consider investing for the financial protection of your family. 
 
One really can’t predict what would happen in life so it’s very important that you actually take this term insurance to completely financially secure your family.
 
So go go go… take your term insurance now and protect your family