You’re sitting with your family on a Sunday afternoon watching a good movie on TV when suddenly in a break you’re reminded about the insurance policy you need to buy.
You open your mails in office and most of them are selling some kind of insurance to you.
Middle of the night your sleep is disturbed by your phone’s buzz! It’s nothing but a promotional SMS to buy life insurance!
I can go on and on, but I am aware that you got the point. Now so much of bombardment can obviously lead you to take a decision that yes, you do need insurance and you go ahead and buy one. But wait! Before taking a decision under stress, think about it a little bit more. Find out whether you need insurance or not. And if you do, then what kind of coverage you need for actually an insurance to make an impact in your life rather than showing up just as a tax-saving investment! Let’s take you through some of the basic things you got to be clear about before making such an important decision.
Is insurance needed?
If you’re single with no dependents as well as not much of a debt to be taken care of, you can put your money in investments which offer you handsome returns while you’re still alive. However, if you have dependents and lots of debts to take care of, then you definitely need insurance.
What kind of insurance?
If you want to safeguard your family from the destruction of business after your death, then you have to buy a whole life insurance. But if you just want to safeguard them from loss of income, then life term works best for you.
How much coverage do you need?
This is the most important thing to consider when buying insurance. Most of us don’t really calculate how much would be enough. We do think of an amount which probably looks huge as of today, but would it hold the same value say 20-25years down the line when you would actually need it? Let’s see what factors to be considered while calculating the amount of insurance you need based on your liabilities.
- How much debt you have including all kinds of loans? Include the home loan, car loan and any other kind of loan to calculate your total liabilities over the years and then buy an insurance that covers all that debt in the case of your untimely death.
- Your spending pattern will help you to calculate your family’s needs after you are not around. Calculate monthly spending and add the element of inflation to arrive at a figure which will help your family to continue living the same kind of lifestyle as today, in the future. The insurance amount should cover your debts as well as expenses incurred by your family.
- Current savings need to be factored as well. If you’re regularly putting a substantial amount in savings for future contingencies, then you don’t have to buy a costly insurance. If not, plan accordingly so that major future needs are taken care of.
- Add to this the future goals you have set for you and your family, for example, buying a bigger vehicle or kids’ higher education or their marriage expenses. If you have already put the required amount in savings, then you don’t need a bigger coverage on your insurance.
- Finally, you have to add everything we discussed above to come to an inflation adjusted figure of how much money would your family need in your absence to make a decent living. Based on that figure, plan to buy a policy which offers you those returns so that your family doesn’t get affected at least financially in your absence.
As an individual, only you know what are your expenses, what your current needs are and what could be yours and your family’s future needs. Based on that, you have to calculate the amount of money needed to safeguard your future. Buying insurance for the sake of buying does nobody any good. Instead of using it as a tax-saving instrument, invest time and efforts in doing all possible calculations so that insurance can really help you tide through a difficult financial crisis without affecting your morale and state of mind! The insurance companies only have different plans for your different needs, but you have to find out your exact needs, discuss it with your insurance advisor and then buy a plan that helps you live a peaceful life!