Evaluating life insurance needs for Indians
Life insurance is a critical component of financial planning. Yet many in India are either uninsured or underinsured. Understanding the right amount of coverage needed can safeguard your family's financial future. It does this without causing a strain on your current finances. This article aims to demystify the process of evaluating life insurance needs for the average Indian household.
Know your financial goals
Before deciding on the amount of life insurance, it's essential to assess your financial goals. These could include providing for your family's daily needs, funding education for your children, covering wedding expenses, or ensuring a comfortable retirement for your spouse. Quantifying these goals in monetary terms will give you a clear target to aim for with your life insurance coverage.
Calculate current liabilities and expenses
Determining life insurance coverage must include current liabilities and regular expenses. This encompasses outstanding loans like home, car, personal loans, and credit card debts. Additionally, factor in regular household expenses and unforeseen medical costs. The total of these liabilities should be adequately covered by your life insurance policy. This ensures they do not become a financial burden on your family.
Factor in inflation
Inflation significantly affects future financial planning. A sum assured that appears adequate today might not be sufficient in 20 years, given the rising cost of living and education expenses. When calculating how much life insurance you need, it's crucial to factor in an annual inflation rate. A conservative estimate could be around 6% to 7%. This ensures that the coverage remains adequate over time.
Review periodically
Life circumstances such as marriage, childbirth, and taking on new debts can change your insurance needs. Experts advise reviewing your life insurance policy every five years or after significant life events. This practice ensures it continues to meet all your financial obligations and goals. Necessary adjustments may be required as you navigate through various life stages. It's important to maintain adequate coverage throughout.
