Life Insurance provides financial protection to the dependent family members from the risk of an early death of the primary earning member of the family. If you are an earning member of the family, and you have family members who are financially dependent on you, it is important that you financially protect them with adequate insurance that covers their living expenses and any loans/liabilities that they may have to pay in your absence. It is hence said that the apt time to buy a life insurance was yesterday!
Calculating how much life insurance you need is one of the most important financial decisions you will ever make. However, your current cover will always be adequate if you are taking right advice from time to time on a regular basis. Also, it should never be an isolated decision depending only on how much of a premium you can afford. Therefore, while purchasing an insurance policy, taking adviser’s guidance is a must.
Naval Goel- CEO and Founder of PolicyX.com said that when it comes to calculating the actual life insurance cover for yourself, one should take regular monthly expenses into account as the first element that may include current loans and upcoming responsibilities such as marriage, childbirth, etc. “Ideally, 20 times one's monthly income is considered good coverage,” he added.
Part of liability – While taking insurance
All active running loans, including home loan, personal loan, vehicle loan should be taken into consideration as part of liabilities, an appropriate insurance cover will lessen the burden of these in case of an unforeseen incidence with insurance policyholder.
“You should also consider your upcoming responsibilities that may include the purchase of a house, marriage, childbirth and so on. It will help you in having a secure future,” said Goel.
When and why you should re-evaluate
Insurance needs have to be re-evaluated from time to time. Unlike general insurance policies which come with a validity of 1 or 3 years at maximum and they are also bought for a static reason, life insurance policies needs to be re-calculated from time to time as per the increasing age, working conditions, financial liabilities, etc.
Mahavir Chopra, Director - Health, Life & Strategic Insurance, Coverfox.com said that the fact that price of life insurance increases every year you grow older is another compelling reason to not delay buying a life insurance. Things can also become complicated for people who suffer from any kind of disease at an older age – either coverage could be declined by the insurer or the premium bumped to factor the additional amount of risk.
“As a person’s age increases and he enters new stages of life, his needs, responsibilities, and lifestyle also change. At every new stage of life, one must re-evaluate their life insurance cover. Like from being single to getting married to starting a family, to taking a home loan and so on,” added Chopra.
There are certain standard methods like human life value method, income replacement method, a need-based method which can help you calculate your exact need for insurance at every point in time. You can opt any of the methods to cover your family by getting the evaluation right.
However, you need to have an utmost good faith with your financial adviser to know the exact and true value of the desired insurance you will be needing to cover your family.