Is Rs. One Crore Life Insurance Cover Good Enough For You?
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A large amount of people are emotionally happy with Rs. 1 Crore life insurance. But the result of purchasing a life insurance cover without measuring financial loss and early death will cause the lives of the dependents to be devastating. Well, it seems like a wonderful chance to get a life insurance cover at minimal rates. But is the Rs. 1 Crore life cover enough?
How To Find The Right Amount of Life Insurance Cover?
A large percentage of people are emotionally happy with Rs. 1 Crore life insurance. But the effect of buying a life insurance policy without measuring financial loss and early death can be devastating for the lives of the dependents. It would delay life ambitions such as your child's education, child's marriage, and a secure retirement for your partner. Also, in the coming years, your lifestyle will undoubtedly change with a rise in your pay. There could also be an inclusion of additional family members, which could lead to a rise in the liabilities. The best way to arrive at the necessary amount of life insurance is, thus, to use this basic formula discussed next.
Right Way To Choose Life Insurance Sum Assured: Multiplication of Annual Income Rule
This is one of the easiest ways to get a sufficient amount of life insurance. It operates on a simple universal multiplication that needs just two factors-your annual salary and a multiple factor. A multiplier factor is needed so it would be more than only one, two or three years' earnings that would not come to the household if the breadwinner died. The whole future profits will be impacted.
You may also like to read:- Five Reasons Why You Must Buy a Life Insurance Plan
The multiplier factor also takes care of future income flows, based on the current income of the insured, because it also takes into account what the breadwinner (insured) would have earned in the future. As a rule of thumb, one should choose a multiple factor of 20 on the higher side and 15 on the lower side. The answer to this simple multiplication will give you an appropriate life cover amount.
Thus, if a person has an annual income of Rs 8 Lakh, the ideal amount of life will be 8,00,000 x 20 = 1,60,00,000 i.e. Rs. 1.60 Crore.
Rs. 1 Crore Term Insurance should not be a Benchmark Amount
There is no need to pursue the figure for this 1 crore term insurance plan. It could be adequate in the case of one person, and it may not suffice in the case of another person. You will only come to a number if you take into account your potential obligations for your family members. That's why you were buying term insurance in the first place?
What if your home loans and other big expenditures such as your children's education, marriage and retirement needs outweigh this amount? The so-called 'benchmark number' would also fall short in that situation.
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Bottom Line
So, if you're going to purchase a term insurance policy and you're curious how much is enough for you, don't think about it. Only add the basic formula we stated above and find an acceptable term insurance package that will fulfil your family's future needs instead of blindly chasing the Rs. 1 Crore number.
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.
