How much insurance do you need?

                          How much insurance do you need?

A life insurance is, without a doubt, the most key component of any financial portfolio. It is an ideal tool to provide financial security for your loved ones. For instance, a term insurance provides a life cover at lower premium rates, is easy to understand, flexible and provides a tax benefit. In perhaps the difficult moment of someone’s life, a life insurance provides the mental comfort that they are taken care of financially.

It creates an income replacement for your loved ones in case of your sudden demise and takes care of future financial contingencies during important life stages like your child’s education, marriage and more. Depending on your needs, there are a bouquet of life insurance products available – a term insurance, endowments policies, a unit linked insurance plan and more.

So, when buying a life insurance, how do you determine your life’s worth? Here are some factors to consider, when determining the answer to that question:

a)      Income replacement:

The most crucial aspect to remember when buying a policy is that it is before anything else an income replacement tool. Without an alternate source of livelihood, your loved ones may not be able to manage their expenses if your insurance does not provide an adequate cover.

The general rule of thumb is that the death benefit on your policy should equal at least 10 times your annual salary. However, it would be ideal that the death payout be in the range of 15-20 times your annual income.

b)      Liabilities and future expenses:

Liabilities – outstanding loans and mortgages – that you may have currently are an important consideration when determining the sum assured. In your absence, you have to ensure that your loved ones are not bogged down by your liabilities.   

Similarly, important life stages like your child’s education, and their marriage also factor into the math when deciding on the sum assured. While this might seem like a trivial factor, lifestyle and standard of living plays a key part too. You have to ensure that your death payout will enable your family to continue to live at the same standard of living you are currently.

c)       Cost of premium:

Paying the premium is a must if you want to keep your policy active. It could be a monthly, quarterly or annual payment cycle, depending on the choice you have made. When determining the sum assured, ensure that you will be able to pay the premium the policy will cost.   

Note that an uninformed purchase can lead to inadequate cover or worse yet an unideal insurance policy. Before you buy a term plan, it is crucial you conduct a thorough research and get a proper understanding of the product that matches your needs. With a wealth of information available at your fingertips, it is easy to compare the products as well.

In fact, there are simpler tools to identify your needs like the need-recognition and priority-ranking process by Edelweiss Tokio Life Insurance – Vijaypath. It easily identifies and ranks your six financial needs and suggests some really cool tailor-made insurance schemes to address your requirements. You can visit them at www.edelweisstokio.in and they would be happy to help you!