Categorized | Life Insurance

According to The Income of a Person, What Should be the Minimum Insurance Coverage for Him?

Introduction

All of us work hard everyday, go through many struggles and makes many sacrifices to ensure that we and our family have a good life. We want our family’s future to be secure and independent of the circumstances in life. We want that our kith and kin are financially secure whether we are around or whether we are no more to take care of them. Insurance is the primary way we protect ourself and our family against financial losses, illnesses, death and other unforeseen negative situations that can cause a great deal of financial strain and emotional pain.

However, you may be confused about the amount of insurance that you and your family need. The needs of your family will remain more or less the same even when you are not around. A particular level of income has to be always maintained for the family to meet its day-to-day expenses for food, education and so on.  Also, there will be Inflation in future, which too must be taken care of. You must also consider your age and the tax benefits when you go in for insurance. There are many such factors that you must keep in mind before you go in for an insurance policy.

How Much Insurance?

Whether to buy too much or how much insurance is a dilemma you may be struggling with. The payment of insurance Premium will lead to a steady outflow of your income. You may therefore not like to go in for too much insurance as it would affect your daily disposable income. However, if you buy insurance for specific purposes for which you need large amounts of money, such as your child’s college education or wedding expenses, you need to adjust the insurance amount accordingly.

In the unfortunate situation in which your income decreases because of lack of business, layoff, illness or sudden death, your  family may find it difficult to sustain the same level of payment of premium. You may need to adjust your premium payment plan or insurance plans for such extreme unforeseen situations. In addition, when your income changes, you must review and renew your insurance Coverage to determine if the insurance coverage is good enough or more than what you require.

Key Factor

Your income is a key factor that will determine how much insurance you need. The income can be the income from the investments you make besides the regular job or business. According to experts, your individual insurance cover ought to be more or less seven to ten times your gross annual income. For example, a person earning a gross yearly income of Rs 4 lakh should have about Rs 30 to 40 lakh in life insurance cover. This will be the amount you and your family will need to sustain the same kind of lifestyle after an unforeseen eventuality. Before finalizing the insurance cover, it is suggested that one should also takes into account the day-to-day expenses, housing or car loans, child’s education and other liabilities, in order to take optimum insurance cover. Term plans undoubtedly not only provides high cover for low premiums but are also flexible and can help you cover various loans as well.

Thus, as a rule of thumb, you must make your income the key factor when you decide the amount of insurance you need.