How Much Life Insurance Should You Carry?
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If you have loved ones who rely on your income, making sure you have the necessary financial resources in place, including life insurance, is essential. Life insurance can assist in paying off outstanding bills and make day-to-day living expenditures easier for families left behind. The following article provides certain tips to assess your coverage needs if you don't have life insurance or if you have but aren't sure if your policy is adequate.
How Much Life Insurance Should You Carry?
Here are some factors which can be considered while deliberating over the right amount of sum assured of your term insurance policy.
1. Family’s Financial Security
You should make sure to get a comprehensive life insurance plan that sufficiently covers your spouse's future when shopping for one. Your chosen insurance plan must be able to protect your partner's long-term care needs so that he/she may live a dignified and comfortable life when you are gone. Living costs, medical expenses, and help-related costs are just a few crucial factors to consider. Moreover, it must be noted that people with two or more children as dependents will need a more comprehensive insurance policy.
2. Current Income
When deciding on a term insurance policy, it's crucial to think about your current annual income. There is a general guideline to purchase life insurance equal to ten times your yearly income. However, due to severe inflation and rising living costs nowadays, you need to buy at least twenty times your annual income.
3. Beat Inflation Rate
When evaluating your family's future needs and expenses, keep inflation in mind as your family's wants and expectations will surely continue to grow over time. This is why it is always a good idea to examine your insurance coverage every five years, and especially when you reach certain life milestones like marriage, buying a new home, having a child, and so on. Most insurers have built-in features to assist policyholders, such as increasing the overall sum assured or life-stage linked upgradation.
4. Loans & Debts
If you have any outstanding debts or loans, the death payouts of your term insurance policy can help your nominee repay them all if you die within the policy duration. Thus, it would be wise to calculate the value of your loan repayment instalments while deciding the sum assured you would like your beneficiary to have. This way, your personal loan payment obligations won't fall over your loved ones' shoulders.
5. Plan Term
When choosing coverage, it's essential to think about how long the policy will last. It's very much possible that the insurance coverage that stops after you turn 50 isn't all that terrific. So, you can invest in a term plan with a return of premium option if you intend to retire early. This way, you'll be covered until you retire.
Take Away
In order to get the most life coverage for an extended amount of time, it's ideal to acquire a good term insurance policy when you're younger and healthier. Moreover, not having enough term insurance can put you and your loved ones in a financial dilemma. So, when you acquire a term insurance policy, think about all of its components and how they affect your life.
Also read - How to Buy the Perfect Term Insurance in 2021?
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.
