Buying Insurance

How to decide how much Insurance should I buy?

Insurance

Insurance is the most inexpensive way in which you can buy peace of mind, sometimes people  resources may go an extra mile and pay insurance companies to get cover for things they consider dear to them. Therefor people may buy insurance for their body parts, pets, ant farms, and what not.For most of the common people, the question that often arises is whether you are buying the right insurance product and not wasting money on unnecessary insurance covers.Primarily, everyone has to buy unnecessary insurance policies when they come along bundled  with other products like electronic goods, home loans, cars, or any other insurance policy as an addition without realizing that these may cost them dearly.

How much insurance do I need? That’s a question you’ll have to face in the process of buying a life insurance policy. While deciding the cover, it is important to remember that the objective of insurance is to provide financial support to your family and/or dependents, in case you (as the primary breadwinner) are no more or are unable to earn because of a permanent disability or illness. The life cover you decide on should be adequate to help your family maintain the standard of living you would have provided for them always.

To do this and secure the future of your family, you’ll need to make a smart and well-informed decision today. Start by identifying your financial goals and then estimate the cover you will need to meet those goals.The lack of transparency about the funds being ploughed into the market by the insurance firm, the fixed, limited returns and the inability to withdraw funds before maturity are what makes the whole life insurance lose lustre, she said. But the term insurance policy is simple. It requires you to pay only the basic cost covering the sum insured, but you get the same or a larger life cover. So, a term insurance is preferred over the life insurance policy, she said.If you opt for a term insurance policy for risk management and even choose to invest the remaining savings in an average-performing multi-cap mutual fund, returns at the end would be relatively better than what you’d get from a life insurance policy.

Life insurance policies has been set to for double-digit earnings decreases in the second quarter as the pandemic-induced economic slowdown has ushered in decade-low interest rates and weighed on sales.It has been predicted by the analysts declines in underlying earnings per share of between 10% and 14% from a year earlier for the four major life insurers, for example Sun Life Financial, Manulife Financial Great-West Lifeco and IA Financial.Your insurance policy’s length mostly depends on your personal circumstances, if you are fairly young and want income replacement for your entire career, then a 30-year term policy could be ideal. If you are older, or you have few debts and tons of savings, on the other hand, a shorter-term life insurance policy might be better.If you are looking into term life insurance, beware of policies that do not allow you to “convert” your term policy into a permanent one, this feature typically allows you for exchanging your term policy for a permanent plan such as universal life or whole life without proving you’re still healthy.

Factors of buying Insurance

  1. Your Current Annual Income

The first major factor of considering in the process of deciding your life insurance coverage is your current annual income. While ‘10 times the annual income’ used to be the thumb rule to decide the life cover, high inflation, and the rising costs of living now warrant that you opt for at least 20 times your annual income1.

So, if your present income is Rs. 5 lakhs per annum, it would be prudent to opt for a life insurance policy that offers a cover of Rs. 1 crore. This amount would help your family cover their annual expenses and maintain their standard of living in your absence.

  1. Your current and future Financial Liabilities

Your financial liabilities like outstanding loans and debts are another major factor to consider while choosing the sum assured of your life insurance plan. In case you die early, your family may have a hard time managing EMIs along with household expenses, especially if you were the sole breadwinner. Hence, you always need to ensure that the coverage is large enough to meet all your existing liabilities.

Financial assets that are liquid or near-liquid could also help your family meet these liabilities. For example, bank deposits, stocks, or mutual funds. You can, therefore, take the approximate market value of these assets into account while calculating your required coverage and reduce it accordingly.

  1. What are your Financial Goals

Your financial goals, of course, play a major role in deciding your coverage, and the whole point of insurance is to help your family maintain the lifestyle you provided for them, in case of your early passing. That includes meeting financial goals like your children’s education and marriage, both of which require a considerable amount of money. Your life cover must, therefore, factor in these liabilities that you are likely to face in the future while keeping inflation in mind.

  1. Your age during Insurance buy

In what age you are buying your policy is also very important, because, different life stages have different requirements. That also makes reviewing a life insurance policy periodically, quite necessary.While deciding the cover how long do you want to remain covered, it is important to choose the policy tenure carefully, the life insurance policy cover that stops covering you when you are 50 may not be that great. Ideally, you should buy when you are younger, and opt for the maximum tenure possible.

When you buy a policy that is affordable, you will be much more likely to be able to hold onto it if you have to make any serious cuts to your budget.Always be sure to speak to a knowledgeable independent agent who can ‘shop’ various companies to find the best rates for your particular situation.When you buy a policy that is affordable, you will be much more likely to be able to hold onto it if you have to make any serious cuts to your budget. But the term insurance policy is simple. It requires you to pay only the basic cost covering the sum insured, but you get the same or a larger life cover. So, a term insurance is preferred over the life insurance policy, she said.If you opt for a term insurance policy for risk management and even choose to invest the remaining savings in an average-performing multi-cap mutual fund, returns at the end would be relatively better than what you’d get from a life insurance policy. In terms of life insurance, the premium you pay includes the basic cost to cover the sum insured and an additional amount of money, which the insurance firms invest in equity market. According to a financial consultant he returns of such investment are passed on to the insurer only through limited, fixed bonuses every year or at the time of maturity.

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