How much life insurance cover?
We fail to ask ourselves before buying a life insurance policy is - How much coverage I need?
Our emphasis lies in picking the insurance product rather than evaluating our insurance needs. The standard practice of financial planning advocates us to first calculate the insurance requirements and then start analyzing the available options before picking the suitable product.
In India, when it comes to life insurance we mostly hear about calculating the insurance requirements using the human life value (HLV) method. HLV takes into consideration only the income of the individual.
The purpose of insuring under a insurance plan is for the family to meet the expenses after the demise of the earning member. Need-based approach, often termed as expense replacement, considers the expense that the family would require to sustain in the absence of the bread winner. It is also important to understand that the family needs readily available cash to pay off the deceased member's medical expenses, funeral expenses, debts, estate settlement cost, emergency fund and final expenses as the inflation rate increases the cost of living also goes up. The family of the deceased should be able to sustain itself in such conditions as well. Hence, it would be prudent to link to the insurance requirement of individuals.
Need for life insurance from person to person. Life Insurance is normally purchase for remaining obligations such as home loan, vehicle loan, credit card dues, meeting child's future education needs, etc. Life Insurance takes care of the future expense needs of the family.
Almost all Life Insurance plans would pay cash lump sum as claim settlement. Some plans are for a fixed term, while others provide you with life cover for the rest of your life.
Some people say help me to cover my repayment housing loan payments (EMI). Some say I want high insurance cover as I travel very often But many of them say that, I want to leave some money for my loved ones to use if I die during the policy term.