How much Life Insurance cover should you get?
Life’s uncertainties may topple even the most meticulous plans and during such unforeseen situations, our financial security is our pillar of support. One reliable way to keep our family’s future financially secure is to purchase a good life insurance policy.
One common question that rules the mind while buying a life insurance policy is – what should be the right amount of life insurance cover? The amount of life insurance cover depends on several factors, as discussed ahead –
Financial Milestones
Different people have different financial milestones. Some may need a good amount in their early thirties for marriage, and some may need a big amount in their forties for their children’s higher education. So, identify your life’s financial milestones and decide the amount of life insurance cover in sync with these requirements. Get the suitable amount that would be your family’s backup in times of need.
Mr Ramesh is a married man with two kids. He would be meeting the financial milestones of his kids’ education, higher studies, and marriage. Though he has an investment plan ensuring at least 25 lakhs over the next 15 years, he must include this amount in his life insurance coverage. This will keep his family’s goals safe even in case of his untimely death.
Age
This factor largely influences the selection of the sum assured. Starting at a young age may demand lesser finances, but, gradually the liabilities will increase. And even at an older age, the amount of life insurance coverage should take care of the inflation and the maintenance of the lifestyle.
Mr Suresh is purchasing his life insurance at the age of 29. He is unmarried and would be needing plenty of resources later in life. He has bought a plan covering his children’s higher education, weddings, and even his retirement corpus. He has left no scope of uncertainty about the fate of his family in case of any mishap.
The Extent of your Liabilities
Policyholders should foresee the extent of their liabilities. It is important to envisage the unfortunate situation of a piled debt due to early death while buying the life insurance plan. Liabilities like home loans, education loans, business loans, etc., must be covered in the life insurance policy.
Mr Naresh has an outstanding amount of Rs 50 lakhs on his home loan. This is a significant financial burden that cannot be ignored while deciding life insurance plan.
Retirement Plan
Be it a business or a job; retirement is always on the mind. Pick the life insurance amount as per your retirement plan. If you want early retirement, buy a plan with enough corpus that would cover the expenses of you and your spouse. If you want a post-60 retirement, the major financial liabilities will get covered during working years, and thus the life insurance policy coverage must correspond with the easily payable premium.
Mr Jignesh has a fair idea that he would retire by the age of 50. He purchased a life insurance plan with a bigger premium that he would be able to pay during his working years. His plan allows for finishing the premiums early, while policy will continue till later years with monthly payouts covering his living expenses.
The Right Cover
One mistake people often make is delay their insurance buying plans in search of the “Perfect” plan with the right insurance cover. It is advised to spread your insurance premiums across different buckets such as term insurance, ULIPs, retirement plans etc., based on your objectives and budget. Most importantly, start with one, even if it is a basic life insurance policy.