How to Select The Right Life Insurance Cover

An increasing number of people purchase life insurance policies with covers as much as 10 times their yearly salary. While a high sum assured is certainly a good move considering the benefits you will be eligible to receive upon maturity, it is important to calculate the amount of cover you need in a systematic and diplomatic manner. The main reason why you will be purchasing a life insurance policy is to ensure that your family will be financially secure even in the case of your unfortunate and untimely demise. So long as you have individuals who depend on you for money, a life insurance policy becomes highly important.

There are different ways through which life insurance cover can be availed by customers, the simplest and cheapest of which is considered as term insurance plans. The premium payments made towards a term insurance plan secures the life of the policyholder, and in case of the unfortunate and untimely demise of the policyholder, the beneficiaries / nominees of the plan will receive the entire cover amount, thereby making it extremely important for customers to determine how much life insurance cover they should purchase.

Since the financial requirements of each individual is different from the next person, your liabilities must be taken into consideration when determining how much cover you need. You will also have to consider the extent of dependency on your shoulders. If you have a high number of dependents in addition to outstanding loans / balances that need to be cleared in case of your accidental death, the life insurance cover you must purchase will be relatively high.

While most people choose life insurance cover worth 10 to 15 times of their current yearly income, you will have to think about whether or not investing such a percentage of your salary will affect your lifestyle or the standard of living of your family. Some of the biggest factors that must be considered before choosing your life insurance cover are as follow:

·         Monthly expenses

·         Outstanding loans

·         Current age of your spouse

·         Life expectancy of your spouse

·         Current life insurance cover

·         Overall assets held by you, not including the value of your residential property

Following is formula into which the aforementioned points can be incorporated to help you attain a clear idea about the amount of money you should choose as life insurance cover:

Step 1:

Inflation adjusted monthly expenses of dependents = A

Life expectancy of spouse – current age of spouse = B

C = A x B

Step 2:

Total outstanding loans = D

Current life insurance cover = E

Overall assets, not including residential property = F

Total life insurance requirement = C + D – E – F

While taking inflation into consideration, it is recommended that you also consider it at a rate of 10%, and the life expectancy of your spouse must be dependent upon the life history of the family and considered slightly higher than the average of the family in order to be safe. In case you find any difficulty in computing your life insurance cover on your own, online calculators can always be used as they are effective and efficient in providing accurate results.

Computing your life insurance cover requirements is always a good idea as it will help in ensuring that you won’t be under- or over-insured. Although term plans are the ideal insurance options, make sure to go through all your options and read through the fine print to find the policy that will best suit your distinctive financial requirements.