Do You Really Need 10 Times Of Your Salary In Life Insurance?

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Do You Really Need 10 Times Of Your Salary In
Life Insurance?

• Getting a life insurance is a must, but when it
  comes to choosing the coverage amount, most
  people get confused as there is not much clarity
  about it. Most of us do get swayed by the figure
  of 10 times our salary and consider it to be a
  substantial amount and eagerly jump on to this
  widely held notion of investment. However,
  reality is based on a different set of facts,
  which must be considered before selecting the
  coverage amount.

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• Lets help you understand the factors you need to
  consider while deciding upon the insurance cover.
• 1)Age
• If youre young, the premium youll pay for the
  coverage will be lower so you can save on your
  outgo while still getting a higher coverage
  amount. This also gives you a flexibility to
  increase your coverage in the future

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• 2) Age Of Dependents
• This would help you to determine how much income
  replacement is needed and for how many years in
  case of your death. Life insurance is supposed to
  not only help your family get a substantial
  amount of money to replace the income loss, but
  also need to cover the lifestyle expenses in case
  of young children and ageing parents.

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• 3) Debts
• If you have loans to pay off, then you have to
  calculate pending instalments plus the amount
  needed to replace your income. However, if you
  have made separate provisions to pay off those
  loans and debts, then you need not factor that
  while calculating your coverage amount. Having a
  separate corpus for all kinds of debts or an
  investment plan for these expenses will help your
  family to focus on their life after you rather
  than worrying about paying off debts.

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• 4) Kids Future
• If your children are very young, you need to
  factor in their educational expenses plus
  expenses to be incurred on them as they grow up
  keeping in mind the rising cost of living based
  on inflation. College education as well as
  marriage expenses are shooting through the roof
  these days and you have to make a plan for paying
  these bills even in your absence.

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• 5) Current Income
• Now this is the most important aspect based on
  which you will plan everything. When we talk
  about 10 times your salary, it might seem a lot
  at current rates, but what you have to consider
  is how much that amount will sound say 10 years
  or 20 years down the line. The purpose of having
  a life insurance is to replace your income so
  that your family can maintain the same kind of
  lifestyle they have, your kids can get adequate
  education the way you would have provided them
  and life goes on well, at least financially, in
  your absence.

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• You can calculate this amount by factoring in
  your current yearly expenses, the rate of
  inflation, your current income and the number of
  years you want to provide security to your
  family. However, if your coverage is higher, your
  premiums are also going to be on the higher side.
  But you cant put all your savings in getting a
  higher coverage as that would leave you with
  little money to live a comfortable life. Be
  pragmatic and get a coverage that gives your
  family enough time to stand on their feet rather
  than trying to give them a life of comforts, but
  only in your absence!

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• 6) Interest Income
• This is another way of looking at life insurance
  coverage. Instead of having a blind calculation
  based just on your income, there is a way to get
  a massive coverage so that in case of your
  untimely death, your family can put that money in
  bank and survive purely on interest accruing from
  that deposit. Even though it might still not be
  enough to last forever, it can still give them a
  few years of sustenance. The only catch is, be
  ready to pay higher premiums while youre alive!

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• There is no fixed rule for you to follow while
  opting for a coverage amount. In case you want to
  just pay off your debts and loans, in that case a
  minimal life insurance coverage is enough with
  those figures in mind. However, if you want to
  make sure your family lives comfortably for a
  particular number of years, in that case consider
  your salary as your benchmark and start
  calculating based on that. You might want to go
  10 times your salary or 15 times, it doesnt
  matter. What is important is that you arrive at
  that amount after due diligence and after
  considering every aspect of changing financial
  needs of your near and dear ones.

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