About Life Insurance
How much life insurance you want is an important question, but it is not the most important question to consider. The question that needs consideration is why you need a life insurance cover. This question indirectly answers the first question.
If you want to avail of a life insurance coverage due to tax benefits, the policy amount really does not matter. If you want to avail of this plan as an investment, again the sum assured does not make a doesn’t make a difference.
The reason why the policy amount needs to be evaluated is if you are worried about what would happen to your dependents in your absence. Take that approach and suddenly, the amount you had originally imagined becomes pitifully low.
The main factor is to ensure that the lifestyle of your family does not get affected if you die early. Look at your current age, salary, lifestyle, and life goals. Also taking into consideration your assets and liabilities, your life insurance need is considered by taking the total life insurance required, less total assets, which will give you the insurance cover required.
The traditional life insurance plans entail a high premium-risk cover ratio.
Moreover, their internal rate of return, and would probably not beat inflation. Instead, it is better to avail term plan, where you can get sufficient insurance to provide for your family by paying a reasonable amount. The most important thing when it comes to life insurance is to forget returns. Instead, focus on how much insurance you really need and get term insurance for that.
From your child’s education till the stage when he or she becomes financially independent, your insurance cover has to provide sufficient funds to ensure all needs are taken care of. One should have an insurance cover of around 12 times your annual income. However, it is essential to take other aspects into consideration as well.
Consider the following:
- Your age and number of dependents
- Your annual income and annual expenses
- Your outstanding liabilities like home loan, car loan, etc.
- Your investments/savings
- Your lifestyle expenses
- The money you would require in the future.