Buying an Insurance? Here's the Amount of Coverage You'll Need!
While purchasing a term or life insurance, there is one question that will bug you the most, yet it is the most important one. What is the right amount of coverage for me?
When you decide the amount of cover, it is important to keep in mind the objective of buying an insurance policy is providing financial support to the dependents or family, if anything were to happen to the policyholder.
The life coverage that you decide on term insurance must be sufficient for maintaining the lifestyle of your family that you have been providing them.
Hence, it is important to make a well-informed smart decision for safeguarding the future of your family. Here’s a tip, start with identifying your financial objectives and then calculating the coverage required for meeting these objectives.
What Amount of Coverage Should I Buy?
Deciding the amount of cover you need to purchase is not that daunting a process as it sounds. All you need to do is consider the following factors.
Present & Future Financial Obligations
Your financial obligations such as outstanding debts and loans are a major factor to take into consideration when deciding on the sum assured of your insurance plan.
For instance, if the policyholder passes away early, their family may suffer in managing the outstanding debts along with day-to-day household expenses, especially if the deceased was the breadwinner for the family.
Hence, you need to make sure that you buy a cover that is sufficient for meeting all your current liabilities.
Age While Buying the Policy
Another important aspect is your age at the time you purchase the policy. This is because you may have different requirements at the different stages of your life. This also calls for the need to revisit your term insurance plan every time there is a major change in your life.
Current Income (Annually)
Your present annual income is an essential factor in the process of deciding your insurance cover. Earlier the thumb rule to decide the life coverage was “ten times your annual income”. However, the rise in the cost of living and high inflation requires you to opt for a minimum of “twenty times your yearly income”.
For instance, if your annual income is 120,000 dirhams, then an ideal insurance policy for you would be the one that offers a cover of 2.4 million dirhams. This amount will help your dependents to cover their regular expenses and maintain their lifestyle in the future.
Your financial objectives, obviously, play an important role in deciding your insurance coverage. The entire point insurance is helping your family in maintaining the standard of living that you have provided them, even in your absence.
This includes meeting financial objectives such as the education of your children and their wedding. Both of these events need a considerable amount of funds. Hence, your life insurance coverage must keep in mind these liabilities, which you may have to meet in the future while taking inflation into consideration.
The Tenure of the Policy
When you decide on your insurance cover, it is necessary that you select the policy tenure carefully. An insurance cover that stops covering you at the age of 50 might not be very suitable.
Ideally, you must purchase insurance in the early stage of your life and go for the maximum policy term possible.
In a Nutshell!
Getting the right amount of term insurance or life insurance cover might be a daunting task, but it isn’t rocket science either. You may find various online calculators that will help you in estimating the amount of coverage that would be ideal for you. Just don’t forget to keep the above-mentioned factors in mind.