Getting a life insurance is a must, but when it comes to choosing the coverage amount, most people get confused as there is not much clarity about it. Most of us do get swayed by the figure of ’10 times our salary’ and consider it to be a substantial amount and eagerly jump on to this widely held notion of investment. However, the reality is based on a different set of facts, which must be considered before selecting the coverage amount.
Let’s help you understand the factors you need to consider while deciding upon the insurance cover.
If you’re young, the premium you’ll pay for the coverage will be lower so you can save on your outgo while still getting a higher coverage amount. This also gives you the flexibility to increase your coverage in the future.
2) Age Of Dependents
This would help you to determine how much income replacement is needed and for how many years in case of your death. Life insurance is supposed to not only help your family get a substantial amount of money to replace the income loss but also need to cover the lifestyle expenses in case of young children and aging parents.
If you have loans to pay off, then you have to calculate pending installments plus the amount needed to replace your income. However, if you have made separate provisions to pay off those loans and debts, then you need not factor that while calculating your coverage amount. Having a separate corpus for all kinds of debts or an investment plan for these expenses will help your family to focus on their life after you rather than worrying about paying off debts.
4) Kids’ Future
If your children are very young, you need to factor in their educational expenses plus expenses to be incurred on them as they grow up keeping in mind the rising cost of living based on inflation. College education, as well as marriage expenses, are shooting through the roof these days and you have to make a plan for paying these bills even in your absence.
5) Current Income
Now this is the most important aspect based on which you will plan everything. When we talk about 10 times your salary, it might seem a lot at current rates, but what you have to consider is how much that amount will sound say 10 years or 20 years down the line. The purpose of having a life insurance is to replace your income so that your family can maintain the same kind of lifestyle they have, your kids can get the adequate education the way you would have provided them and life goes on well, at least financially, in your absence. You can calculate this amount by factoring in your current yearly expenses, the rate of inflation, your current income and the number of years you want to provide security to your family. However, if your coverage is higher, your premiums are also going to be on the higher side. But you can’t put all your savings in getting a higher coverage as that would leave you with little money to live a comfortable life. Be pragmatic and get a coverage that gives your family enough time to stand on their feet rather than trying to give them a life of comforts, but only in your absence!
6) Interest Income
This is another way of looking at life insurance coverage. Instead of having a blind calculation based just on your income, there is a way to get a massive coverage so that in case of your untimely death, your family can put that money in the bank and survive purely on interest accruing from that deposit. Even though it might still not be enough to last forever, it can still give them a few years of sustenance. The only catch is, be ready to pay higher premiums while you’re alive!
There is no fixed rule for you to follow while opting for a coverage amount. In case you want to just pay off your debts and loans, in that case, a minimal life insurance coverage is enough with those figures in mind. However, if you want to make sure your family lives comfortably for a particular number of years, in that case, consider your salary as your benchmark and start calculating based on that. You might want to go 10 times your salary or 15 times, it doesn’t matter. What is important is that you arrive at that amount after due diligence and after considering every aspect of changing financial needs of your near and dear ones.
Invest wisely, be safe! Compare Term Insurance Plans & Opt the Best Plan To Secure Your Future.