Term insurance is amongst the most basic cornerstones of good financial planning. It offers a security blanket to your family in your absence in the form of a sum assured at comparatively inexpensive premiums. One such widely bought policy amount is ₹50 lakh.
But the key question is ₹50 lakh term insurance adequate for your family’s financial safety?
In this article, we shall analyze the important factors to keep in mind while making a well-informed decision. We shall also see when ₹50 lakh coverage is perfect and when it may not be enough.
Understanding Term Insurance
Term insurance is a pure protection policy that pays a sum amount to the nominee in case of the policyholder’s death within the term. It doesn’t pay any maturity amount, so it is economical and easy. But for being that easy, most people end up underestimating or overestimating the sum they need.
A ₹50 lakh term insurance policy may appear big, but the sufficiency relies on various individual and financial aspects.
When is ₹50 Lakh Term Insurance Enough?
There are certain situations where ₹50 lakh coverage may be enough:
- Low Financial Obligations: If you are not old, not married, or do not have dependents, and your debt is less, then ₹50 lakh may be an adequate financial buffer.
- Short-Term Planning: Those planning for short-term liabilities, such as financing a sibling’s education or paying off an automobile loan, might consider ₹50 lakh sufficient if their liabilities are limited and investments are made.
- Supplemental Coverage: If you have other insurance policies, EPF, or company-sponsored group life insurance already, ₹50 lakh can act as a supplemental level of protection.
- Stay-at-Home Spouses or Singles: If you’re a stay-at-home husband or wife or an unmarried person with no significant financial dependents, your requirement for coverage may be much lower. Even then, a comprehensive needs analysis is important.
Major Factors to Determine Whether ₹50 Lakh Will Be Sufficient
- Your Current Monthly Expenses
Calculate your family’s monthly expenses and multiply them by 12 to find the annual expenses, and then by 20 for approximating the amount they will require over the next 20 years. If your family expenses are ₹40,000 per month, your family could require approximately ₹96 lakh for just maintaining living levels for 20 years.
- Outstanding Liabilities
Do you have a housing loan, car loan, or personal loan? Your term cover must be sufficient to settle all loans so that your family isn’t left with EMIs after your demise.
For instance, suppose your home loan is ₹30 lakh and other dues amount to ₹10 lakh. That’s ₹40 lakh out of the ₹50 lakh coverage, leaving behind only ₹10 lakh for other requirements.
- Future Goals
Planning for your children’s education, marriage, and the retirement of your spouse must be included in your calculation. Planning for a child’s higher education alone may require ₹20–₹40 lakh over the next 10–15 years because of inflation.
- Inflation
₹50 lakh now will not retain the same value in 10 or 20 years’ time. With an assumption of a general rate of inflation of 6%, the purchasing power of ₹50 lakh in 20 years would be lower than ₹16 lakh today.
- Your Age and Income
If you’re in your 20s or early 30s and earning below ₹5–6 lakh per annum, ₹50 lakh may offer coverage equal to 8–10 times your annual income, which is often a starting point for term insurance planning. But as your income and responsibilities grow, so should your cover.
A Better Approach: Human Life Value (HLV) Method
One of the best methods of determining your optimal term insurance cover is the Human Life Value (HLV) approach. This method estimates your future income, subtracts your expenditure, and takes your liabilities and objectives into account to arrive at the appropriate sum assured.
For instance:
- Annual salary: ₹10 lakh
- Years of work remaining: 25
- Future income in discounted present value: ₹1.5 crore
- Liabilities + Objectives: ₹70 lakh
- Optimal cover: ₹1.5 crore – ₹70 lakh = ₹80 lakh minimum
In such a scenario, ₹50 lakh term insurance would be insufficient.
What Happens If You’re Underinsured?
Many people focus only on affordability, not adequacy. While a ₹50 lakh term insurance plan might come with low premiums, it could leave your family financially vulnerable. Here’s how:
- Inability to repay outstanding loans
- No funds for children’s higher education
- Financial insecurity for a non-working spouse
- Forced asset liquidation to meet regular expenses
Underinsurance compromises the whole value of purchasing life cover.
The Role of Premium Affordability
Even as you need to procure sufficient cover, the same should be affordable. Compare premiums using a term insurance premium calculator across various sum assured values and policy tenures so that you can harmonize your expenses with your requirements.
You can also modify online calculators to adjust such features as riders, premium payment frequency, and policy term to derive the maximum worth for money.
Options: When ₹50 Lakh Falls Short
In case you have decided that ₹50 lakh is not enough, your alternatives are:
- Increased Coverage: Opt for ₹1 crore or more, depending on your HLV.
- Staggered Approach: Purchase two individual term policies (₹50 lakh today, another ₹50 lakh after 5 years) to keep pace with increasing responsibilities.
- Joint Term Plans: Best for couples, joint plans can offer increased combined coverage at improved premiums.
- Consider Riders: Add protection through riders such as critical illness or accidental death benefits, which can offer extra payments over the basic sum assured.
Choosing the Best Term Plan
Whether you opt for ₹50 lakh or more coverage, select the best term life insurance policy for your requirement. Here’s what to consider:
- The claim settlement ratio of the company
- Premium affordability and flexibility
- Policy term (preferably till age 60–70)
- Optional riders for added protection
- Online buying convenience and digital service
Conclusions
₹50 lakh term insurance is a good place to begin, particularly for young professionals or those with limited liabilities. Yet, as life progresses, so too do monetary responsibilities. Never allow cost to dictate over sufficiency in securing the future of your loved ones.
A proper evaluation with the help of a term insurance premium calculator or the HLV formula can assist in arriving at the correct sum assured. Term insurance is not an option to tick off, it’s an assurance of financial security.
So, before purchasing a plan, think about your objectives, obligations, and dependents. And if ₹50 lakh falls a bit short of your future, it makes sense to look at the best term life insurance policies for a better, more realistic cover.