How much Insurance should an individual buy? Find out | The Financial Express

How much Insurance should an individual buy? Find out

The 30s is an ideal age bracket for an individual to get insured as you get a big enough tenure to create a decent nest egg for the future. 

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It’s the lack of understanding regarding the sum insured that might lead to financial adversities.

It’s the uncertainty in life that makes us think more about our loved ones’ financial security. To meet such needs, life insurance is one of the first things that spring to mind. 

Supriya Rathi – Wholetime Director, Anand Rathi Insurance Brokers says, “The need for purchasing an adequate Insurance cover has grown amidst the present COVID-19 pandemic. However, the under-insured Indian population is perplexed by it.” 

She further adds, “In hindsight, it’s the lack of understanding regarding the sum insured that might lead to financial adversities.” 

Hence, it’s imperative to evaluate the criteria that should be used to answer this impending question – ‘How much Insurance do I need?’

Here are some of the factors to consider before you make this conclusion;

1.       Life goals

Most primary life goals, both yours and your loved ones’ necessitate proper financial assistance. The 30s is an ideal age bracket for an individual to get insured as you get a big enough tenure to create a decent nest egg for the future. 

Rathi explains, “When we consider the effects of compounding and the averaging of lows and highs, the money tends to multiply in bigger proportions over the long term. The end goal here is to equip one’s family with much-needed financial security in the event of his/her untimely death.”

Hence, list your significant life goals so you can estimate how much money your family will need to achieve their aspiration.

2.       Current Financial Liabilities

According to experts, first, take a note of all the assets that you’ve purchased through loans and now imagine that your family would end up bearing the burden of these debts if you won’t be around. 

To avoid that, you can make a list of all the loans that you’ve taken out and then Rathi adds, “check at several term insurance plans that can provide adequate coverage at a modest premium. Even the most basic term insurance can aid one’s family during a financial crisis.”

3.       Age

Your age is a significant parameter as it has a direct impact on the premium for life insurance maximum amount. When you are young, you are eligible to buy an adequate sum assured at low premiums as against a later stage in your life where the premiums are high and the sum assured is less. 

Rathi explains, “The 30s is where an individual is free of the financial commitment that comes with the consequent ages. Those in the 40s comprise the largest faction of the life insured as they are after all the core earning members of the family. 

“Although, the burden of their children’s educational expenses and parents’ medical expenses is taken into consideration at that age,” she adds. 

4.       Estimated working years

A decisive aspect of your retirement planning is to take care of your financial responsibilities during your working years. 

“The coverage amount that one chooses must dovetail with the premium that he/she can afford during these years. Life Insurance premium is a responsibility that can be handled during one’s work life,” points out Rathi. 

Having said that, according to experts, the best-case scenario is when you select a limited pay option with your life insurance plan so you can finish paying the premiums early on while the policy continues till a later age.

Bottom line

If you need life insurance, it’s imperative to know how much and what kind you need.

“A sufficient life insurance coverage would be where one’s family can maintain their lifestyle as it is,” clarifies Rathi. 

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First published on: 26-04-2022 at 20:21 IST