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You want to ensure that your family is not in financial hardship when you are no more and your salary ceases. Life insurance is a great tool that will help protect your family from financial problems and in meeting their critical needs when you are not around to take care of them.
A life insurance Policy is a legal contract between an Insurer and the policyholder. If you have a life insurance policy, the insurer will pay the designated Beneficiary of your policy a predetermined sum of money after your death. This is called the sum insured. It could also be given if you are bed ridden with a critical illness.
While you decide to have life insurance cover, you may wonder how much insurance you must buy i.e. what should be the sum insured. Though there are no written rules about how much cover amount someone should have, there are certain guidelines and strategies that you must adopt while deciding the policy coverage. These strategies will help ensure that your family gets the amount due to them when they make the life insurance Claim and has enough money to meet their needs.
These are mostly rules of thumb that people have always employed while buying life insurance. Some of the important things that you must consider are the following:
You must first decide for how long you want the policy i.e. if you want it for a particular duration or for your entire life. It is not necessary to have insurance cover for your entire life.
Expenses You must consider what and how much of your family’s expenditure will be met out of the insurance amount. For example, when your child will be reaching college a lump sum amount will be required for the college expenses. The insurance Premium must be decided accordingly.
You must consider your age and your children’s age before you purchase an insurance plan or policy. In case you want your policy to mature when you reach retirement, you must purchase the policy only for that much number of years. In case you have young children, you must buy a policy such that they get the cover amount when they reach a particular age and so on.
Your current salary is one of the most important criteria that you must consider while buying an insurance policy. Your policy coverage amount should be roughly 4-8 times that of your current annual salary.
You will need lesser coverage if your spouse too is employed. If your spouse is not in a job, you must consider this while buying insurance.
You must buy insurance depending on how much assets you and your family possess. More the assets lesser is the insurance coverage that you need. You must also consider if you have liabilities like loans etc. In case you have home loans etc. to pay off, you must consider taking a higher insurance cover amount.
If you have the right insurance policy with the right cover amount, your family will have the essential cash to meet their needs even after you are gone. Your family will be able to carry on with more or less the same kind of lifestyle even when you are no more to take care of them.