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.
Minimum
protection
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.
Additional
coverage
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.
Age factor
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.
Parting
Note
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.