Categorized | Life Insurance

Are You Adequately Covered

In today's unpredictable economic condition, buying life insurance cover is a smart and judicious financial step for those who want their family or other dependents to be financially secure even after they die. Unfortunately however, majority of life insurance Policy holders are under insured, which jeopardizes their loved one’s security.

Also on the contrary you will find people who are over-insured, paying for life cover they don't really need. Finding the right balance in buying the right life insurance cover for both you and your family requires a very clear understanding of finance, ability to see a big picture, and a good amount of foresightedness. This whole matter of finance is so confusing and difficult to understand that people often go under Insured or over insured. Though a lot can be said about consulting with insurance agents, there is still no replacement for educating oneself with the basics of life insurance policy.
 
So how much life insurance is actually adequate?

In order for you to have a balanced insurance plan it is important that you correctly evaluate your insurance need.

Evaluate Your Insurance Requirement:

One of the key factors of choosing the right life insurance policy is determining how much money your dependents will need. Choosing the “sum assured” (i.e. the amount your policy pays if you die) depends on:

Your total debt: Your aim here is to insure yourself in such a way that your debts gets paid off completely. You can take into account car loans, credit cards, personal loans, etc. So as an example this is how your calculation should be, if you have a Rs 5000,000 house loan and a Rs 50000 car loan, you must opt for at least Rs 5500000 sum Assured in your life insurance policy, to cover your debts, adding a little bit more to the Sum Assured would give you a buffer for any sudden expenses coming up later on.

Substitute of regular income: One important job that a life insurance cover performs is that of replacing the regular income, so that is a key factor which determines the size of your policy. If you are the sole earning member for your dependents and you earn Rs 2000000 a year, you will require a life insurance policy that promises a sum assured big enough to replace your income plus a little extra to guard against inflation.

Future commitments: If your intention is to secure your child’s academic future or your spouse’s old age in your absence you will have to evaluate the cost of those obligations, consider the Inflation and calculate the amount that would be required.

Consider Insuring other people: In addition to insuring yourself there are other people who you should consider insuring too. If you are wondering how much insurance is needed for the people close to you: As a rule of thumb, insure only those people whose death would result in the financial instability to u. It could be your better half with a significant earning, or any business partner with whom you have a financial relationship, or person with him you have a joint loan etc.

You also need to consider if there are any other additional obligations, if all the above mentioned points are taken care of while buying the insurance you should rest assured that you have a balanced life cover policy.