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Buying life cover is an issue of great concern if you are the primary breadwinner of your family. The life cover value needs to be very carefully calculated if you want to safeguard the future of your family without compromising on your present needs. Many people who buy life insurance cover end up buying the wrong amount: some either too little to practically satisfy family needs, and some so high that they have to make severe cuts in their regular budget. The following guide can help you find out what amount of life cover you must buy, and how much is sufficient.
Your present income is a powerful deciding factor on how much life cover value you need. It lets you settle on a minimum necessary amount for life cover as well as keeps you from getting carried away by a huge sum Assured and eventually having to pay enormously high premiums.
This is a general rule that most insurance counselors would abide by. Extensive calculations have proven it to be effective in most cases. So if your annual income is Rs. 3, 00,000, a life cover value of around Rs. 24, 00,000 should be appropriate for you.
A generous Sum Assured is certainly a sturdy safety net for your family, but do keep in mind that putting in too much of your income into life insurance can eventually turn out to be a bad deal as interest rates are very low for life insurance policies. Therefore, it is strongly recommended that you buy only what is practically needed.
Calculate how much money your family needs per month for their regular expenses, including costs of children’s education, loans, debts, etc. The number of dependents you have should be taken into account and their basic needs should be considered. In any case, as a concerned provider, you must make sure that any kind of mishap does not pose any practical difficulties on your family and the sum assured is able to support the lifestyles they are used to living.
The stage of your life determines how much you need to put into life insurance cover. Life cover value needs are low at two stages – when you are very young, and when you are at retirement age or your children are well settled in their lives. These are the times when you hardly have anyone who depends directly on you for his or her bread and butter. On the other hand, need for life insurance cover is at its peak for individuals in their 30s and 40s when children need maximum financial support for studies, wedding, etc.
This is one benefit most people like to avail while setting aside Premium amounts for life insurance every month. You must buy life cover of a value such that your tax savings can be maximized.
So be prudent when it comes to choosing life cover value and do not mistake insurance for investment.