One of the most important things that every family should think about when planning their finances is the life insurance coverage. What life insurance does (just in case you weren’t aware) is that it provides protection for you and your family in the event of death, critical illness or any form of permanent or total disability that could affect your ability to work and overall quality of life.
The challenge for every family, therefore, is to decide which life insurance plan to take and how much coverage to get. So first off, let us see what kinds of plans are out there. There are whole life insurance plans, endowment insurance plans, term Insurance plans, and Investment-linked Insurance Plans.
These all come with various terms and conditions so you can choose the best plan for your needs and financial goals.
Now let us see how much life insurance coverage is enough. You and your family will have to look at the following as you decide you much cover is enough:
Debt – any kind of debt beyond your mortgage means that because you are spending above your income you will need more life insurance to pay the debt off.
Expenditure – what does your family need each month to live comfortably? Get the exact amount and that will help you decide how much cover you should get so that your family will receive due care should anything happen to you.
Savings – if you paid attention to your elders and have developed the discipline of saving money, then you do not need too much coverage.
Long term – this has to do with long term saving goals such as the kids’ education and your retirement. Again, if you have enough savings, you do not need a lot of coverage.
Annual income and expenditure – The number of years you will need to provide for dependents. Family dynamics such as single or double income, elderly parents etc.
All these factors will determine how much coverage is enough for your specific set of circumstances. Often, the cover required will exceed what you are practically capable of obtaining given your income and expenses and financial goals.
This means that more often than not, families must look beyond their life insurance covers to find other means with which to secure themselves in case anything happens to the main income earner of the family.