Here's how you can select life insurance plans according to your income

Below are a few important factors:-

Current expenses-

The main goal of investing in a life insurance plan is to make sure that the lifestyle of your family is not affected in any way. No matter in which income group you fall in, you should never forget to add all monthly expenses and multiply the same with 12 to determine the expenses of a year. A few expenses you need to add are:

• Premiums paid collectively by your family.
• Monthly expenditure like utility bills, grocery, etc.
• Children education fees.
• Miscellaneous expenses.

All the above-stated expenses are the basic expenses that should be taken care of in case of your demise. If you are a policyholder then you have to keep a few things in your mind like you need to calculate expenses over a year and also the increasing rate of inflation.

For example, if you are 45 years-old and after the calculation, you come to know that your basic yearly expense is around Rs. 4,00,000 per year and the inflation rate is around at 7% per year.

After calculating the same with the growing inflation rate, it will cost around Rs. 13,00,000 a year after a decade. Therefore, the average amount that you may require will be around Rs. 7,00,000 per annum.

So, you may require a sum assured of Rs 1.4 crore i.e. 7,00,000* 20 (Number of years until retirement).

Income multiplier-

Income multiplier is also an effective method which you can use to the get the estimation of sum assured that you should go for. With this technique, you have to multiply your income by age group to get an estimation of the required sum assured. Under this method, you have to deduct your expenditure from your net income and after that, you have to use the factor of multiplication. For a person who falls in the age group of 20-30 years, the minimum insurance coverage multiplied by the income by a factor of 5 and to get the maximum insurance coverage to multiply the same by a factor of 10.

You should not calculate the life insurance policy only at the time of purchase, but you should also keep it in mind and evaluate the same in every 5 years. Thus, with the same, you may come to know about your growing needs and can look for additional policies in case of need or to support your family. Moreover, with the same, it will become quite easier for you to figure out the policy or sum assured that you should have.

Assets and liabilities-

There is no doubt in saying that investing in a house is one of the biggest liabilities in one’s lifetime and a big part of the population take help of the home loan for this expense. A policyholder should not forget to add home loan and several other debts that he carries in the list of liabilities and he /she should make a separate list of assets that includes gold, investments made in the capital market, fixed deposits, etc. After calculating the assets and liabilities one can compute the amount of sum assured he/she will require.

Conclusion

It is a fact that most of the Indian population needs a life insurance policy and it is always advisable to invest in the same as early as possible. However, in the same order, it is also vital to know that what kind of life insurance policy you should buy which can easily go well with your needs. If you are buying the policy online, then you must compare life insurance policy online to get the best out of all and stop yourself from getting stuck in a wrong plan.

(The writer is CEO of PolicyX)