Determining the cover amount of your life insurance is not rocket science. Keep a tab of factors like age, income, and liabilities to know the suitable cover amount easily. Mentioned in this post are key questions to ask yourself to arrive at the right figure. Keep reading.
Life insurance is an assurance tool to tackle life’s unforeseen situations. Therefore, it should have sufficient coverage for easy inclusion of important expenditures of family and loved ones.
One common confusion at the time of buying life insurance is that what should be its coverage amount. The lack of knowledge about the right amount of life insurance cover may cause financial inconvenience in the long term. This calls for a better understanding of all the factors that help in determining the right cover amount of life insurance.
To find the answer for ‘What should be the cover amount of life insurance?’, first answer the following questions –
What is My Purpose in Buying Insurance?
Your purpose of buying the insurance is an important factor for determining the amount of life insurance. While the basic aim of buying life insurance is to provide security to the family, in the absence of the primary earner, there could be some sub-goals also like higher education, taking property loans, the marriage of siblings/children, etc. Such goals, or sub-goals, will help decide the cover amount as all must be covered in the life insurance, especially if any calamity strikes.
Key Point: Carefully contemplate the primary purpose of buying the insurance and buy a corresponding cover.
Is My Income Regular?
A regular income is an assurance that helps in buying a big life insurance cover. A salaried person may find it easier to pay a premium regularly compared to a businessman with abrupt earnings. If you have a regular income, comprehensive coverage can be purchased for the fulfilment of dreams and aspirations. So, check your income and buy such cover that would be ten to fifteen times of its worth, and its premium should be easily payable without any disturbance.
Key Point: Your income should easily cover life insurance premiums, and the cover should suffice the family’s expenditures and financial goals.
What are my Outstanding Debts/Liabilities?
If you have a lot of debts and liabilities, buy such a life insurance cover that would be sufficient to take care of current and future instalments of loans and debts. The policy amount must pay off all liabilities like pending credit card bills, home loans, vehicle loans, mortgages, etc.
Key Point: Choose your life insurance cover amount after carefully estimating liabilities and active/passive assets.
What is My Age?
The is the foremost and important factor that would help you determine the cover of your life insurance policy. For example, if you are in the age bracket of 25 to 35 years of age, your insurance cover should be minimum 18 times of your annual income, thus ensuring comprehensive coverage of liabilities. However, if you are within 44 to 55 years, the insurance cover should be 10 to 15 times the annual income.
Key Point: When you are young, buy larger policy cover with phased payouts so that the financial goals and liabilities get fulfilled.
Keep a Regular Check on Your Life Cover
While you may plan to the T on the right life cover, your lifestyle, needs, and budget will change as you age. So keep revisiting your life cover against the questions above to ensure your insurance cover can handle the changes.