In order to provide your family with security, you should purchase a life insurance policy. Furthermore, it is important to select the right cover amount while purchasing life insurance. But selecting the cover amount can be difficult.
If you want to calculate the right cover amount, then read this article.
One of the most important concerns that every person has is his/her family’s financial safety. Life insurance can be a good option for providing the family with financial support. In case the policyholder passes away during the tenure, the insurer can pay a cover amount to his/her family. This cover amount can be used by the family to meet the financial liabilities.
Thus, it is crucial that the cover amount provides adequate financial assistance. This is because if the cover amount is low, then the policyholder’s family might suffer from a financial burden. Therefore, in order to provide sufficient financial help, calculating the right cover amount is important.
How to Calculate the Cover Amount
- Income
The cover amount will be used to replace the policyholder’s income. Therefore, it is crucial for it to be adequate. Most experts recommend the cover amount should be 15 to 20 times the policyholder’s annual income.
- Calculate Your Debts and Expenses
The cover amount should be sufficient to repay all the outstanding debts. Therefore, before buying a policy, you need to calculate all your debts and liabilities. Furthermore, you need to consider your family’s monthly expenses.
By adding the expenses and debts, you will understand your financial liabilities better. Therefore, it can help you figure out a good estimate.
- Consider Expected Future Expenses
You might have to face a few additional expenses in the future, such as your child’s education. You need to consider such expenses while calculating the cover amount.
It can be difficult to calculate the cover amount manually. However, you can use a life insurance calculator to calculate the cover amount easily. You need to enter a few important details in order to calculate the cover amount.
The details that you will require are-
- Your current age
- Your desired retirement age
- Annual income
- Monthly expenses
- Liabilities
- Expected future expenses
- Your savings
Once you enter these details, the calculator will calculate the cover amount you will need.
Things to Consider Before Purchasing Life Insurance
- Determine Your Investment Goal
Before purchasing life insurance, you need to determine your investment goal, such as accumulating funds for life after retirement.
- Compare Multiple Policies
It is recommended that you compare multiple plans before selecting a policy. You should read the reviews and understand the benefits of different policies.
- Look at the Claim Settlement Ratio of the Insurance Provider
The claim settlement ratio refers to how many claims are settled against the number of claims filed. Make sure you select an insurance company that has a high claim settlement ratio.
In conclusion, choosing the right cover amount is crucial in order to provide your family with adequate financial support. You can also take the help of an insurance calculator to figure out a good estimate.
