Buying life insurance is a very important thing to do. However, buying the correct amount of life insurance is equally important. Many people make the mistake of not buying enough life insurance. In their hurry to get a policy, they do not look for the ideal cover. This leads to many problems later on. To ensure you, as well as your family members, stay away from all such problems, buy sufficient life insurance. Take a look at this article to know how you can estimate the correct value of your life cover and how to ensure it is not too little.
Factors to Consider When Calculating Your Ideal Life Cover
- Needs and Requirements - The biggest factor to take into account is the financial requirements of your family. The entire purpose of buying life insurance is to build up a financial cushion for your loved ones to rest on after you are gone. If you have a small nuclear family consisting of your spouse and one child, your required life cover will be smaller as compared to someone who has a larger family with dependent parents, more children, etc. This is why you need to calculate the needs and requirements of your family and then proceed towards finalising the best life insurance cover.
- Financial Capacities - While you will want to have a high cover for your loved ones to fall back on if you die, you have to be realistic when choosing the value. The higher the life cover, the more expensive your premiums will be. If your premium is too expensive, you will struggle to clear it on time and this may even lead to your entire policy getting lapsed. This is a very dangerous proposition so you should buy a plan that you can comfortably afford. If you have a financial constraint look for the best plan that offers sufficient cover at an economical price.
- Income - Another vital component to take into consideration is your income. After you die, the life insurance proceeds will work as your income replacement and your family will depend on it financially. The ideal life cover should range between ten to twelve times your current annual income. So if you earn a yearly salary of INR 20 lakhs, your ideal life insurance cover should be around INR 2 crores.
- Other Sources of Income - You also need to keep the other sources of income in mind when finalising your life insurance cover. If you are the only earning member of your family, you need to go for a higher life cover. However, if there are other sources of income for the family, such as your spouse’s salary, your parents’ pension, a rental income, etc, you can settle for a lower sum assured.
- Debts - This is a major and very significant factor that you have to keep in mind when buying life insurance. If you have a large debt or mortgage that you are repaying, you need to get a life cover that is large enough to cover the loan. If you die without repaying it, the onus will fall upon your surviving family members to clear it and they may not be financially capable of doing so. This is why you should calculate the value of your debt and add it to the life cover to ensure your nominees can easily clear the loan after you die and also have enough money left to carry on with their lives.
- Future Financial Milestones - Everyone has different financial goals they strive for. You also surely have these goals such as buying your own house, sending your children abroad for higher studies, getting a knee replacement surgery done for your mother, etc. Make sure you calculate these financial milestones when looking for your ideal life cover. If you die suddenly, your family should still be able to achieve these milestones with the help of the sum assured they receive from the life insurance policy you had bought.
Your ideal life insurance cover should be large enough to cover all of the above-mentioned points. Do not rush through this step - take your time, calculate each and every overhead carefully, assess your family’s needs very closely, get a realistic idea of what you can afford, and then get the best possible life insurance coverage. Fortunately, there are many life insurance plans in different varieties that you can choose from. Find the best plan and keep your loved ones protected at all times.