Getting properly insured has become a must in the current scenario, but the question remains – How much insurance should you buy?
Supriya Rathi – Wholetime Director, Anand Rathi Insurance Brokers, says, “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. The need for purchasing an adequate insurance cover has grown amidst the present COVID-19 pandemic. However, the underinsured Indian population is perplexed by it.”
In hindsight, it’s the lack of understanding regarding the sum insured that leads 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;
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 one gets a big enough tenure to create a decent nest egg for the future. “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 the family with much-needed financial security in the event of the bread earner’s untimely death,” says Rathi.
List your significant life goals so you can estimate how much money your family will need to achieve their aspiration.
2. Current financial liabilities
Industry experts say one should think of all the assets that they’ve purchased through loans and then imagine that their family would end up bearing the burden of these debts if the bread-earner won’t be around. Rathi explains, “One should make a list of all the loans that they’ve taken out and 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.”
Your age is a significant parameter as it has a direct impact on the premium for life insurance maximum amount. When one is young, he/she is eligible to buy an adequate sum assured at low premiums as against a later stage in his/her life where the premiums are high and the sum assured is less.
Rathi says, “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.”
4. Estimated working years
A decisive aspect of your retirement planning is to take care of your financial responsibilities during your working years. Note that the coverage amount that you choose must dovetail with the premium that you can afford during these years.
Rathi says, “Life Insurance premium is a responsibility that can be handled during one’s work life. The best-case scenario is when one selects a limited pay option with his/her life insurance plan so one can finish paying the premiums early on while the policy continues till a later age.”
If you need life insurance, it’s imperative to know how much and what kind you need. Sufficient life insurance coverage would be where your family can maintain their lifestyle as it is.