How to choose the Right amount of Life Insurance for yourself?

When deciding on the coverage of a life insurance policy, keep in mind that the purpose is to offer financial help to your family and dependents if you are unable to work due to a chronic ailment or sickness. To do so, first determine your financial goals and then estimate the coverage you will need to reach those goals.

However, a lack of understanding of the principles upon which this decision should be based can result in financial difficulties later in life. As a result, to assist you, below is a list of important aspects to examine before determining the appropriate amount of life insurance.

Family Budget and Goals

Your family’s objectives and costs have a big impact on how much sum insured is needed. The whole point of insurance is to support your family in sustaining the standard of living you have always provided for them in the case of an accident. God forbid, if something were to happen, life insurance would assist your family in meeting their financial obligations, such as paying for higher studies or providing for marriage, both of which are costly. Your life insurance policy must therefore take inflation into account as well as these potential future expenses.

Your Age

The sum assured is significantly influenced by your age when you purchase life insurance. If you get life insurance when you are young, you may receive a significant amount protected for a small premium. This is because there is less of a chance for any major illnesses or other such events. Additionally, as we grow, our financial needs and goals change. You might not have many financial obligations when you’re in your 20s, but as your family grows, your expenses will probably rise as well. Therefore, getting a sufficient amount of life insurance for your family will allow you to maintain your existing standard of living.

Annual Income

It is stated that the most important factor to take into account when purchasing life insurance is your current annual income. The general guideline when choosing life insurance is “10 times the yearly income,” but today’s strong inflation and skyrocketing living costs necessitate at least 20 times your annual income to cover your expenses.

Expected Number of Working years

It is preferable to have an idea of when you intend to retire. It is recommended that you have a time frame in mind for which you will need to plan ahead of time in order to pay for specific commitments. Payment of life insurance premiums, which is also a responsibility, can be done during working hours. You can pick a limited pay option for your life insurance policy to quit paying premiums early while the coverage continues until a later age. Thus, with various life insurance plans, you may arrange to get a monthly income as well as life insurance coverage.

Any Outstanding Debts or Liabilities

Another factor to consider before deciding on the sum insured for your life insurance policy is your financial responsibilities, which might include current loans or debts. Unfortunately, if you die early, your family may find it difficult to handle your debts or EMIs, as well as household expenditures, especially if you were the sole earner. As a result, always ensure that your coverage is enough to meet all of your current and future duties.

Have you decided to purchase life insurance? Keep the above factors in mind while you determine the right sum insured. These factors will give you a sense of the average amount you’ll pay for life insurance, however, it also depends on other factors such as where you live and other personal factors. So, do your analysis and make an informed decision about purchasing the right sum insured.