When a person buys online term insurance, selecting the sum assured is the most important task. Sum assured is the amount which policyholder’s beneficiary will receive in case insured die during the policy period.
According to expert financial planner, this sum assured must be around 10 times your annual income or 15 times your annual expenses. Those who have debts like home loan, education loan, do not forget to consider these factors while estimating their coverage.
Other policies which also double up as investment plans offer fixed sum assured to policyholders. IRDA has instructed a minimum insurance level in these policies so that they don’t just have pure investment policies. The minimum coverage is based on insured’s age and term.
- Policy Period of 10 Years+
The death benefit or the minimum sum assured on a term insurance policy online shall not be less than 10 times the annual premium for individuals below 45 years of age. The minimum sum assured is nearly 7 times the annual premium for individuals above 45 years of age. According to IRDA rules, death benefit offered to the nominee at any time during the policy period should not be less than 105% of the premiums paid.
- Policy Period of Less Than 10 Years
For plans with a period of less than ten years, the least sum assured is 5 times the annual premium for each individual. Under this scenario also, death benefit or the sum assured offered to the nominee at any time during the policy period should not be less than 105% of the premiums paid.
The limit for regular policies with a shorter tenure is relaxed by Insurance Regulatory and Development Authority because insurance companies in India showed difficulty in making term insurance plans with shorter period as well as with a minimum sum assured limit of ten times the annual premium.
- Tax Implications
Term insurance policyholders will not be eligible to avail tax benefits if they select a sum assured of less than ten times the annual premium. Under section 80 C, tax deduction benefits have hiked to Rs 1.5 lakh. Maturity benefits would be tax-free under section 10(10D), if the premiums is not more than 10 percent of this sum assured or the sum assured is minimum 10 times the premium.