Factors That Decide The Amount Of Life Insurance You Need

February 19, 2021

Factors That Decide The Amount Of Life Insurance You Need

Even the best Life Insurance is restricted by certain criteria that determines how much amount is necessary for you. The best possible ways to help protect your family, however, is to begin investing in a Life Insurance policy, as early as possible. A Term Life Insurance comes in all shapes and sizes, and being aware of your needs can help you prepare for the amount you require from your policy. Here are a few factors to assess before investing in a Life Insurance policy so that you can be rest assured of a coverage amount that suits your needs.

Your post-taxation income

Your income is an indicator of how much of an annual corpus you can amass from your job, assets and more that will be used for any expenditure, including your Life insurance premiums. Tallying up your income including any liquid assets, post taxation, will help you with two things. The first is the coverage gap that you can estimate by subtracting your liquid asset income from your annual expenses.

This difference is the amount you should expect out of your Life Insurance policy. Another key benefit of tallying up your income is to get an idea of what amount of Life Insurance coverage you can afford. Ideally, a Term Life Insurance policy should be invested upon, as early on in life as possible. This way your premiums are low but, the coverage offered is much higher.

Your financial obligations

Financial obligations include daily expenses, the cost of dependents, debt and liabilities such as, loan repayments and more. If you already have children, college expenses are also a possible financial obligation for you. Discretionary costs, although secondary, should also be considered as a ‘financial cushion’ as part of your obligations. These expenses include vacations, recreational activities, professional trainings, hobbies and more.

By calculating your financial obligations, you can estimate your Life Insurance coverage gap through a simple calculation. Simply estimate your liquid assets, which are a part of your post taxation income. Liquid assets include any short or long term capital gains, profit from one’s business, income from a house you own that is on rent, or any form of endowment one comes into. Tally your financial obligations and subtract liquid assets from them. This equals your coverage gap. In other words, this is the amount you should get from Life Insurance.

Your Health and Age

Both health and age are essential criteria when estimating the amount of coverage, you need. People usually believe these criteria should be used to estimate the cost of your premiums, which is true. However, even the overall coverage is partially determined by your health and age. This is because they directly affect how long your insurance will last. As an example, the older you grow, the less coverage you require from your Life Insurance policy. This is going with the assumption that you probably have lesser debt to pay off and not as many dependents to support.

Another key criterion that can aid in determining the coverage you need is your age. Age increases health risks and is potentially also an indicator of your financial status. The longer you delay your policy, the higher the cost of premiums. For the same amount of coverage, you will be paying exorbitant amounts simply because you delayed getting a policy by ten to fifteen years. The reason for this is simply that the older you are, the more health risks you pose, so insurance providers raise the cost of premiums for lower coverage. Knowing your age and where you are in life right now can help you determine the amount of coverage you want to secure from any Life Insurance policy.

The Bottom Line

Ultimately, the amount of coverage you require from your Life Insurance policy is a factor of your financial obligations, post taxation income and personal characteristics. There are a slew of both Term Life Insurance and whole Life Insurance policies with different criteria that offer a complete range of coverage suited to every kind of need. The bottom line is that your Term Life Insurance policy should last as long as your outstanding debts and other financial obligations, which is often the most affordable financial cover for loved ones in case of your absence. One of the best Life Insurance plans on the market is the ICICI Prudential iProtect Smart term plan. This plan is both affordable and flexible so that you can support your family at any stage of life.

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