How Much Life Insurance You Must Buy?

Life insurance is important to protect the financial future of your family in the event of an unfortunate circumstance. It ensures that your family is able to pay off their daily costs and debts on time as well as get long-term goals met in your absence. However, deciding on how much life insurance can be difficult. It depends on different factors like your income, lifestyle, outstanding loans, and future financial responsibilities. This article explains how life insurance works, how to calculate the amount of life insurance coverage, and a lot more.
 

How does life insurance work?

Life insurance is a financial safety net for your family members. When you take a life insurance plan, you pay regular fixed insurance premiums to an insurance company, and it provides a lump sum or death benefit to the beneficiary. You can use this amount to support your family with daily living expenses, settle old bills, or fulfil future plans for education. The policy remains in effect provided that you pay the due premiums on time. This way, life insurance ensures that even in your absence, your family remains stable in terms of finances.
 

How to calculate the life insurance coverage needed?

If you want to know how much coverage do I need, then follow the steps given below to calculate it.
 

Calculate the monthly expenses of your dependants:

The initial step is to list your family’s monthly expenses, such as rent, groceries, school fees, and health care costs. As an example, say your family spends Rs.60,000 per month, or Rs.7.2 lakh per year. You have to get coverage 10-15 times this cost to meet long-term financial security, including inflation.  

Factor in your liabilities:

The second important thing to consider is liabilities. Make sure you add up all your outstanding loans, such as a home loan, car loan, or personal loan. These liabilities should not be a burden on your family and should be fully covered under your life insurance.
 

Consider important goals and life events:

Make sure the life insurance plan covers all the important financial goals, like your children’s higher education, marriage, or any other major expenses that you want to secure. Your total coverage should include all future goals.
 

Factor in your existing wealth:

When planning for life insurance, make sure you subtract your current savings and investments from the total coverage needed. These may include mutual funds, provident funds, fixed deposits, or real estate that your family may access.
 

Keep in mind a retirement plan for your spouse:

Post retirement, your spouse will need a stable source of income. Before selecting a life insurance plan, calculate how much corpus would be sufficient for them to live comfortably during their retirement years.
 

Your age when you buy the policy:

One important thing to note here is that the younger you are when purchasing life insurance, the lower your premium will be. So, it is important that you start early, as it will help you lock in higher coverage at a more affordable cost.
 

The tenure you want the coverage for

Select the term according to your needs and financial conditions. Preferably, your life cover must be extended until the time when your dependants are self-sufficient, or your significant liabilities have been settled.
 

What will happen if you don't select the correct coverage amount?

It is vital to know how much life insurance should I have. When you don’t select the correct life insurance coverage, then you may put your family’s financial future at risk. Choosing a lower coverage may leave your family members struggling to manage daily expenses or meet long-term goals. On the other hand, selecting a higher coverage than required can lead to expensive life insurance premium, adding unnecessary financial pressure.

To make a wise choice, you can compare various life insurance plans online. It is also easy to buy policies and make payments from the comfort of your home with Tata AIA Life Insurance. Get access to different plans such as term insurance, savings plans, ULIP, retirement solutions, and whole life insurance. They offer comprehensive protection, with options to enhance coverage through riders^#.
 

Conclusion

A suitable life insurance cover ensures the financial security of your family in your absence. It assists them in managing the daily expenses, outstanding debts, and long-term objectives. Do not choose too little, as it can leave your family unprotected, or too much coverage that makes premiums too expensive. Consider your income, debt, and lifestyle, and then make a decision. A suitable cover will be estimated using online calculators, and the plans will be compared to identify the perfect combination of affordability and coverage to protect the future of your loved ones.