Life is priceless, and you cannot put a value to it. However, life is uncertain, and your sudden absence may leave your family in a financial crisis. Therefore, it is important to invest in life insurance, as it offers monetary protection to your family if anything unfortunate happens to you.
Life insurance pays the benefits to your nominees in your absence during the policy’s duration. Therefore, it is critical to avail of high coverage to ensure that your family does not face any financial distress while emotionally dealing with your absence.
The primary objective of a life insurance policy is to safeguard the economic well-being of your loved ones if something untoward results in your untimely absence. Therefore, you need to make an informed decision on the amount of coverage that your family members will require. Here are five factors you should consider to make the correct decision:
1.Present yearly income
This is one of the most important aspects to keep in mind while determining the life insurance cover. The general rule of thumb is that the sum assured (SA) should be 10 times your present income. However, with rising inflation and higher expenditure, you may require more than 10 times coverage. The chosen amount should ensure that your dear ones can sustain their lifestyle when you are not with them.
2. Current liabilities
You may have taken a home loan and a car loan. If a tragic incident takes place, your family will have to repay any outstanding debts. If you do not opt for a substantial SA, the benefits of life insurance may not be enough to meet these obligations. Also, if your family has to utilize the entire policy benefits to repay your dues, they will be left without any money to meet their regular expenses and maintain their lifestyle.
3. Future financial goals
It is essential to consider your future objectives, such as children’s higher education and their wedding. You may also want to ensure that your spouse has a comfortable life ahead and does not have to through a monetary crunch when you are not around. You need a sizable corpus to fulfill these aspirations. So, it is advisable to consider this aspect while calculating the SA of your life insurance policy.
Life goals vary according to your age. So, it is important that you consider your age while buying life insurance. Moreover, it is crucial that you review the coverage as you grow older to ensure that the SA is sufficient to cover your additional responsibilities. If you invest in life insurance at a younger age, you can get a higher SA at an affordable premium.
5. Period of the coverage
Different life plans offer various tenures, and it is necessary to take into account the duration till when you want the life insurance cover. It is beneficial to opt for a life insurance plan that extends for a longer period. It is recommended that you buy a policy when you are young and choose the maximum tenure available.
Apart from your life goals and liabilities, consider your assets and other investments like mutual funds, fixed deposits, provident funds, and more. These are available to your family in your sudden absence and can aid them to meet some of their financial requirements. This will help reduce the amount of life insurance cover.
You can select from different types of life insurance plans. These include money back, endowment, term policies, and others. You must understand what is life insurance and the various available policies. Doing this will help you in finding a plan that maximizes the benefits for your family in your absence.
Determining the adequate SA is not as difficult as it may seem, and online calculators can help you in making an informed decision.