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“Buying life insurance” sounds simple. And it indeed is, thanks to the advent of online insurance policies and digital services. But the real challenge is in availing the right insurance coverwhich is actually good enough for you and your loved ones.
For instance, you might havea life insurance plan, yet would you say you are adequately insured? There are 50% chances that you are not.As per IPQ (India Protection Quotient) report, a study conducted by Max Life Insurance in association with Kantar IMRB,more than half of life insurance owners feel that they are inadequately protected.
You must be wondering why we are stressing so much on the quantum of sufficient life cover. There are two reasons for the same:
- Firstly, it financially impacts you
- Secondly, you should be worried whether the cover availed by you will be enough for your family in case of any unforeseen event
Underinsurance Leaves Your Family Vulnerable
The sole purpose of a life insurance plan is to ensure that your spouse, children or other dependents have the money they will need to survive on in your absence. In addition to providing for living expenses, life insurance musthelp ensure that there is sufficientmoney to pay for your loved one’s goals.
However, the biggest risk of having insufficient cover is that your family will receive a lesser amount on claim. Which implies, they may have to face troubles in fulfilling financial obligations such as:
Regular household expenses
Children’s education
Re-payment of debts
What is the Right Cover?
According to experts, sufficientinsurance cover should be at least 10 times of your yearly income and can supplant your future salary.
For example, for a 30-year-old, earning an annual income of Rs. 10 lakhs, a life cover of Rs. 1 crore will bode well for a time of 30 years.
While 10 times is a good rule of thumb, life insurance needs of each family are different. Many factors determine the amount of life cover that you should buy, like:
Number of Dependents
If you have dependents, including your children and parents, who rely on your income, expect to increase your life insurance cover on top of what you are already getting
In your absence, this amount can cover the long-term care that you wish to provide for your loved ones
Source of Income
On account of a workingspouse, you may decide on the lowercover
However, if your life partner isn't working, at that point the protection need is high
You must likewise assess your life cover needs from time to time or atevery important milestone in your life
Current Debts
Availing life insurance policy equivalent to home loan or other loans(personal loans, car loan or credit card debt) is a wise decision
If you are planning to buy life insurance cover of Rs. 1 crore and have a home loan of Rs. 30 lakhs, it’s a good idea to buy life cover worth Rs. 1.30crores to hedge the home loan risk
Family's Future Goals
Providing only for the living expenses of the family is not enough
You should also consider your children's higher education or their wedding or your spouse's retirement expenses
While arriving at this decision, don’t forget to consider rising inflation
Critical Illness
Critical illnesses like cancer and heart-diseases have the potential to wipeout one's savings in a big way
Therefore, considering the rising incidences of these ailments, it’s wise to focus on getting sufficient coverage which can cover the treatment cost of such illnesses if the untoward does happen
To enhance your term insurance cover, therefore, consider adding critical illness add-on which may come at a minimal additional cost
How Much Life Insurance Cover Should You Avail?
In the illustration given below, the person needs a life cover of Rs 1.90 crores. Use thisillustration to calculate your insurance needs.
A |
Age |
30 |
B |
Number of dependents |
2 |
C |
Annual Income |
Rs. 10 lakhs |
D |
Annual household expenses |
Rs. 4 lakhs |
E |
Number of years insured’s family will need funds (60-A) |
30 |
G |
Corpus needed for living expenses (D × E) |
Rs. 1.2 Crores |
Add Outstanding Debt |
||
H |
Home Loan |
Rs. 30 lakhs |
Add Future Expenses |
||
I |
Higher education of children |
Rs. 15 lakhs |
J |
Children’s marriage |
Rs. 15 lakhs |
K |
Spouse’s retirement needs |
Rs. 10 lakhs |
L |
Total Corpus needed for long-term goals |
Rs. 40 lakhs |
M |
Total Life Cover Needed (G+H+L) |
Rs. 1.90 Crores |
Above calculation for term cover is indicative and is subject to individual’s assets, liabilities and life stage. You may also calculate a personalised cover amount by clicking here <https://www.maxlifeinsurance.com/insurance-calculators/human-life-value-calculator>. Please consult with your financial advisor before making a decision.
The Ball Is in Your Court
Having insufficient coverdefeats the purpose of buyinglife insurance. So, if you have already purchased a plan out of sheer ignorance, you need to evaluate your current needs and update your life cover if needed. If you are not sure what to do to increase your cover, feel free to get in touch with Max Life Insurance. We will be happy to help.
ARN: 0507/KC-4/19
