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Education Centre What should I consider when deciding how much life insurance to take?
Education Centre What should I consider when deciding how much life insurance to take? | What should I consider when deciding how much life insurance to take? |
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What makes this policy strange is that the only time you will ever be able to use it is when you are no more. Unfortunately, that will be too late to decide if you bought the right product or not. Therefore buying a Life Policy deserves proper research and consideration so that you ensure security for your family and dependents.
You will need Life Insurance for:
Your spouse or partner Your children Your dependents (like old parent who is dependent on you) Charitable contributions even after you are no more Therefore in case nobody “depends’ on you, you just might not need a Life Cover. It is important that you do not confuse “Life Cover” with “Investment”. Life Cover is a lump sum paid to the people (which you will specify at the time of filling the form) after you die. Types of Cover: In Life Insurance you will be able to choose from: Life Insurance Family Insurance: In this plan payments are made on a monthly basis instead of a Lump Sum. While you lose out on the flexibility of a Lump Sum, it does create an income benefit. You may explore the possibility of an all cash sum or an all monthly income or a judicious mix of both. Business Protection: If you own a business and have taken loan from the bank, it is important that you have a life cover which pays off your loans and mortgages after you or your partner die. Eligibility The person should be minimum of 16 years and maximum of 65 years to get a Life Insurance Cover. The policy generally renews till the 99th birthday of the Life Insurer given the premiums are paid in time. How much Insurance do you need? If you have family members dependent on you, then you need enough insurance so that your family can carry on with their current Lifestyle even if you are not around. You must ensure that the Insurance payout is able to replace the amount of money you are able to generate for your family. Your family will also need some additional amount to be able to adjust them to living without you. This could mean a possible relocation, or your spouse deciding to go for a professional education to get eligible for a better job and so on. How long should be the pay out time? It is important that the Insurance payouts come regularly to your dependents until they are old enough to earn properly and support themselves. Most of the times people go in for 20yr payout duration. However, taking only the time into consideration might make you overlook few other aspects which can arise in future like inflation and college expenses for your children when they grow up. How not to calculate how much you need? 1. By multiplying your annual salary by 8, 10 or 20 – this isn’t an accurate method of determining the total amount of insurance you would need. It takes into account only the salary you bring home and does not calculate the perks and all other extra income you might make. 2. Buying Insurance which covers your debts – while this may look good at the moment of insuring however it does take into account future needs like college education cost. The best way to calculate how insurance you would need is to add up your small term needs like outstanding debts, emergency expenses, attorney expenses and funeral expenses. The next step would be to assess your Long term needs like childcare and college education expenses and then equate them against the total resources you have at the moment like mutual funds, savings, stocks, property etc. Then calculate what extra you will need to cover all expenses and maintain lifestyle. The amount you thus get will more or less be your insurance requirement. Needless to say it will take time and through assessment of your financial condition to come to a plausible conclusion. |
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