How Much Life Insurance Do You Need?
Written on Friday, June 16, 2017
By Mitali Sharma
Growing financial awareness among people has made them convinced to acquire the security of life insurance. So whether to buy a life insurance or not is no more the tricky question, at majority, people know that for the good of their family life insurance is essential. The real tricky question is how much coverage should be taken or how much coverage is enough? This blog will cover the key factors that you must consider while finalizing your life insurance cover.
If you get your insurance coverage through an investment service provider, then you will get this service where they will do your proper need analysis and then will recommend you the cover level. However, for double verification, you should become self-aware about these factors.
1. Time Frame
First and foremost you need to decide the time frame of your policy. Calculating this is simple. Take your present age and minus it from your retirement age. If you are 30 years old and planning to retire at 60, then your earning age is 30 years. So this is the time frame where your family will be dependent on your earnings, so your policy tenure has to be for minimum 30 years
2. Your Income
Your family is maintaining a living standard based on your income. At par with your income capability, you must had selected the education institutes for your kids, similarly your house, car, day-to-day lifestyle everything is in accordance to your income capability, which is regular and guaranteed till you are there to support your family. So, if you want your family to have the same standard of living in future also, irrespective of the availability of your support, then get an insurance coverage equal to the amount that comes up by multiplying your annual income by the number of years in your policy tenure.
While deciding on the final sum assured of your policy, various factors come into action. You should check whether the cover is enough to take care of your liabilities. Start by calculating your liabilities. Do you have an ongoing car loan or house loan? Is your family handy with the education cost that your kids will require in future? Are there any savings done to meet the marriage expenses of your children? These are your major liabilities, closely consider these and try to figure out how much cover your family will require to take care of these liabilities without compromising in their living standard in case they become devoid of your source of earning.
One of the key factors that you should not ignore is Inflation. You are deciding your policy cover considering the present rates and needs of your family but inflation is slowly and steadily lowering the value of money. According to a report published in Economic Times, at an average running inflation rate of 10%, a four-year engineering course that costs Rs 8 lakh today is likely to set you back by Rs 17 lakh in another eight years' time." So inflation will rob your family's purchasing power, that is why you must include the inflation factor while deciding the cover amount of your life insurance policy.
5. Medical Cover
Health security of your family is another major concern. Health emergencycan arise a huge financial crisis in your family. Fortunately, there is provision for medical insurance. So along with life insurance, do secure your family's health with a medical cover as well. So don't delay, consider the factors mentioned above and calculate how much life insurance cover your family needs. If in doubt then take help of investment service providers. As family security is the most important thing, so let's not compromise it in any way.
6. Final formula
Your Income X(multiply) No. of years for which you need the policy cover + (plus) Your EMIs balance +(Plus) Your Debts +(plus) Children Education Cost -(minus) Savings = Final Amount (Adjust the inflation)= Insurance Cover