Is Your Life Insurance Adequate Or Not?

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If you are thinking of a way to secure your family’s financial future, life insurance is the best way to do it. Insurance companies in the market offer different kinds of plans based on the specific requirements of their customers. When you are planning on securing your family’s future requirements, you must determine whether the coverage amount is adequate. The sum assured amount you take must be sufficient to cover your financial liabilities and provide for your family in the long run. How exactly can you determine the exact amount you may need? Let’s find out.

Factors to consider

The following factors will help you identify the exact coverage amount you require for your family’s needs. While most people take life insurance coverage arbitrarily without any specific calculation, it is a much better idea to consider the following factors while determining the sum assured amount for your policy. Through this way, you can plan for all your unexpected liabilities and make sure that your family doesn’t suffer in the future. Without further ado, let’s take a look at the factors that can help you determine the insurance amount you may need.

• Your current lifestyle expenses: This is the most basic thing you may have to consider while taking a life insurance cover. You may want your family to have the same lifestyle or an even better one when you are not there to provide for them anymore. Calculate the sum insured amount based on your family’s total monthly expenses. For instance, if your family’s basic living expense is Rs.15,000 per month, they would require at least Rs.36 lakh to maintain the same lifestyle for the next 20 years.
• Inflation: When you calculate the future living expenses of your family, make sure that you take inflation into account. Inflation leads to higher prices, and it is bound to happen every year. Even a conservative estimate of 3% to 4% per year will help you determine the exact amount your family might need in the future.
• Loans and other liabilities: Before you arrive at a specific sum assured amount, you must consider your total liabilities and the monthly installments that you are paying right now. You must sum up your total liabilities including home loans, personal loans, vehicle loans, insurance premiums, etc., and check whether your insurance money can cover all these expenses. Some life insurers offer specific loan protector covers to lessen the burden of one’s loans on their families. Your total liabilities can help you determine whether or not you need such covers.
• Liquid assets: This includes the different investments you might have made during your productive years. Some of these investments may include PF, mutual funds, stocks, postal deposits, fixed deposits, EPF, government bonds, etc. Following the death of the insured person, the family will have access to all these investments. You may deduct these liquid assets from your liabilities while calculating the sum assured for your life insurance coverage.
• Potential medical expenses: The best way to take care of your family’s medical requirements is through health insurance coverage. However, it is safer to allocate some extra money for your family’s medical expenses. Considering the fact that medical inflation is increasing at the rate of at least 10% to 15% per year, you may have to consider this while determining your sum assured amount for life insurance. Through this way, you can rest assured that your family will not face any difficulties in the future owing to their healthcare needs.
• Provision for children’s education and marriage: These are some of the major expenses one could encounter in their lifetime. Most people have additional covers and investments to cover these expenses. If you haven’t already taken care of these expenses, you need to make provisions for them in your life insurance policy. These expenses may vary from one individual to another. However, you can estimate a fair amount and add that to your health insurance policy before finalising the sum insured amount.
• Provisions for other expenses: Once you have allocated sufficient funds for all these expenses, you may have to allocate a little extra just to be safe. Other expenses such as minor medical requirements, entertainment, recreation, gifts, etc., can be taken care of using these funds.

It is worth noting that these expenses can be calculated only on an approximate basis. Hence, it is better to allocate funds on the higher side just to be safe.

Other considerations while taking a life cover

Expenses should be the main focus of your consideration while signing up for a life insurance policy. However, there are certain other things that could influence your life insurance coverage. Besides the potential future expenses, other factors like affordability, age, insurance tenure, number of members in your family, etc., must also be considered while taking a policy. You may also have to consider the number of years your children need protection from you before they can take care of themselves.

Conclusion

When you are considering a life insurance policy, a term insurance cover is the best way to manage all these expenses at an affordable price. However, you may also consider other policies like endowment covers to get into the habit of investment. While underinsurance can lead to future financial turmoil, overinsurance may result in wastage of premiums. The best way to determine the sum assured amount is by calculating the future expenses using the above-mentioned factors. With the right coverage amount, you can take care of your family’s needs within the premiums you can afford.