Life insurance is essential in today's uncertain world. It protects your family's interests in the event of your untimely demise. The Covid-19 pandemic has made the world aware of this fact like never before. Statistics show that it resulted in a 40% increase in the buying of life insurance plans. The simple truth is that if your family is financially dependent on you and would struggle to survive without you, which makes such cover essential.
Once you've done your research on the types of life insurance policies in India and how does it work, the next step is to calculate the sum assured or insurance coverage for your dependents. Take a look at some of the things to keep in mind to calculate the right sum assured.
1. Replacement of your annual income
When you buy life insurance online, it might be difficult to predict the exact amount your family will require in the future. However, experts recommend a rule of thumb of 10 times your annual income. However, since the cost of living rises over time, due to inflation, the total amount can be taken as 20 times your current annual income. This will ensure that your family continues to live a stress-free life.
2. Present and Future Liabilities
Financial liabilities include outstanding loans, education expenses, and wedding expenses for your children. Although liquid assets such as FDs, bonds, and equities can be withdrawn to meet expenses, they may not completely cover financial liabilities. As a result, it is necessary to obtain coverage that covers all your financial obligations.
3. To meet major life goals
Determine the various life stages at which your family may require large lump-sum amounts. You should have a good idea of how and when to accomplish these goals. This could include family expenses for higher education, marriage, or medical emergencies. The idea behind purchasing a life insurance policy is to ensure that your family maintains the same standard of living in the event of an unfortunate incident.
4. Your age
In comparison to middle-aged people, younger people have more obligations and fewer assets. As a result, the sum assured should be larger for younger families. You can use the following rule of thumb to calculate the amount needed based on your age:
|
Age |
Coverage |
|
25 - 35 years |
20 times current annual income |
|
36 - 45 years |
15 times current annual income |
|
46 - 55 years |
10 times current annual income |
5. Tenure of the policy
When purchasing the policy, make sure that the benefits of life insurance are available for as long as possible. You can use an online calculator to calculate the premium to be paid for the chosen sum assured over the specific tenure.
When purchasing a policy, keep in mind the effect of inflation on the sum assured. It is prudent to review the insurance coverage on a regular basis. To assist customers, most insurers have implemented life stage linked enhancements. You can also consult with your insurer to increase the sum assured or add life insurance riders.