Know how much life insurance policy coverage you should have
Life Insurance policy is an essential product in today’s scenario as they offer financial security to you and your family. But how to decide how much coverage do you require to manage your present and future expenses? This is an important question which we either ignore or do not have an answer.
According to data from the Insurance Regulatory and Development Authority of India (IRDAI), Life insurance companies in India have witnessed a growth of 11.36 percent in their aggregated premium income at Rs 48.26 trillion during the fiscal ended March 2020. But still, there is lack of knowledge among the buyers about how much coverage amount they should opt for or require.
There are different types of life insurance policies available in the market, such as term life insurance, money back plans, Ulips and endowment plans. Out of all, tax-saving insurance policies are the most popular ones.
Generally, policy applicants opt for insurance coverage amount ranging from Rs 25 lakhs to Rs 1 crore. But choosing a random figure might not be helpful enough or correct way to purchase a life insurance policy. Hence, while deciding on the insurance coverage amount, you need to consider your age, the number of dependents you have, your liabilities and loans, annual income, regular expenses, and inflation rate. For instance, if you are married and has a good salary, then you should choose an insurance policy with broader coverage. This is because as time passes by, your liabilities will increase, which includes children education cost, responsibilities of your parents and spouse, home loans, car loans along with other investments. Thus, a life insurance policy having a substantial sum assured to manage all such expenses should be an ideal one.
Let’s understand the factors in detail that you should consider while determining the coverage amount:
Present annual income: One of the significant factors to consider while deciding on the insurance coverage amount is your yearly income. The thumb rule to determine the life cover is that it should be ten times your annual earnings. However, looking at the increasing cost of living and high inflation rate, you should opt for 20 times higher life insurance coverage amount than your yearly income.
Present and future financial obligations: While opting for insurance coverage amount, you should also include your outstanding loans and liabilities. Because in case of your sudden demise, your family will not be burdened with your pending EMIs along with daily household expenses. Therefore, it is advised to add each and every debt that can burden your family in the insurance coverage amount.
Financial targets: The primary purpose behind investing in a life insurance policy is to provide your family financial security so that they can lead their life like before even after your demise. Here, your financial responsibilities like children’s education, marriage and other factors play a crucial role in determining your coverage amount. Therefore, don’t forget to include all your future financial goals and inflation as well.
Different life stages: Life stage is an important factor to consider while choosing an insurance coverage amount. Different life stages have diverse requirements, and thus it becomes necessary that you review your insurance policy regularly. Below we have described a few of the life stages based on age, which might help you select the insurance coverage in a better way.
If your age is between 34-50 years, you would be probably married and even have kids. For you, having term insurance is inevitable for a secured financial future. The ideal life insurance policy for you would be the one that covers your family’s daily expenses for the next 10-15 years, children’s education cost and any outstanding liabilities. If you have taken life insurance early, then it might be inadequate; hence, you should opt for topping up your base policy cover or plan to invest in an additional life insurance policy.
If your age is between 50-60 years, in such a scenario, your children must be financially independent. The only responsibility probably you will have, is your spouse. Therefore, your existing insurance cover should be enough, ensuring that medical expenses are taken care of along with any present loans.
Now in the case of people above 60 years, they will not have any responsibilities of their children as they will be financially independent. Here, the primary objective will be to cover your spouse’s expenses for the remaining years. This implies that life insurance policy differs at every life stage, and you should choose and plan accordingly.
In a nutshell, while calculating the coverage amount you should keep in mind your responsibilities towards dependents, outstanding loans, annual family expenses, children’s education and marriage costs. It would be best if you are sure about the life insurance policy coverage that you are choosing for a secured future. The sum assured or life coverage amount should be sufficient to support the present and future needs of your dependents. Term Insurance offers extensive life coverage at low premiums, and thus experts recommend that every individual should include term plan in their financial planning. You can visit BimaKaro.in to select your preferred term insurance with the right coverage amount. BimaKaro.in offers different term plans from top insurers in India as per your life stage.