If you are young and have no dependents to look after, you might not have even thought of taking an insurance policy. But once you are married you would not turn away from it, because it ensures a complete protection to your family after your death or in the event of unfortunate disease or disability.
Some may complain that they have a small income and should an insurance policy be taken as most of the earnings are spent away. Whatever you may earn, you can still go for a life policy, providing a complete financial protection to your dependents. The following pointers will help you understand how much life insurance you really need to take.
Underwriter’s thumb rule
This rule suggests that you should take a life insurance in multiples of the gross annual income depending on your present age. If your age is between 20 to 30, your insurance policy should be minimum of 15 times of your annual income. If you take a policy after you turn 50 years old, you can take up to 6 times of your annual income.
Your life insurance policy should cover minimum and basic expenses of your family. Your dependents life should not significantly alter in your absence. If you are spending INR 15,000 per month for your family, your insurance should make sure that your family is able to get the same amount after your death. If necessary, a little extra amount should be taken to adjust for inflation.
Apart from covering the general expenses, your life insurance should also cover your financial liabilities such as car loans, home loans, personal loans etc. You must also include expenses for your children’s education, daughter’s marriage etc.
Overall a life insurance should be taken covering one’s risk profile, number of dependents, disposable income, liabilities and wealth maintenance.
It is better to take a life insurance when you are young and healthy. It enables you to pay the premium at ease till the end of the maturity. Moreover, another benefit of starting early is you can save a lot. The premium amount is bound to increase year by year. Hence, if you plan to take a life insurance at later stage of your life, you may end up paying more on your premium amount. Plan wisely and protect your family financially in your absence.
When can you take small amount of life insurance?
You can opt for a small amount of life insurance when your families have lesser dependencies. In another case, if your family members have the capacity to generate income on their own, then you may not have to go for a huge insurance amount.
One must bear in mind that an insurance is not investment. The pure objective of the life insurance is to offer outright financial protection to your family members.