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Many factors determine the life cover needed for an individual. Weighing the pros and cons before zeroing in on a policy is therefore essential.
Most consider life insurance the best way to brace for unforeseen events of the future. There isn’t any basic thumb rule to calculate the exact insurance for an individual; usually the insurance amount is close to 10-12 times a person’s annual income. Many factors determine the life cover needed for an individual. Weighing the pros and cons before zeroing in on a policy is therefore essential. One has to determine which factors fit into their pecking order of priorities and accordingly formulate an investment strategy. Some people do not get adequate coverage despite having many policies, owing to the absence of a proper rationale or a strategy. Hence, one is best advised to avoid treading into uncharted territories, especially for something as germane to life as insurance.
Income Level -
Consumers’ ability to pay the premium holds the key when it comes to purchasing of insurance policies. Suffice to say, one has to operate within his/her means to make ends meet. Purchasing a policy that could become unaffordable in the future would be an ill-advised decision. The key rationale behind the purchase of any policy is the income of the individual, as this determines eligibility and affordability, key cogs of an insurance paradigm. All other aspects such as basic requirements and coverage enter later into the picture.
Future Needs and Expenditure -
If a huge sum of money is required for say a wedding or higher education, the amount of the insurance policy should be commensurate with the anticipated amount for the wedding or higher education. Good groundwork (calculation of inflation etc.) leaves little loopholes in the plan purchased and the benefits that ensue from the plan therefore will percolate to the next generation in a smooth manner.
Age Factor -
It is no rocket science to gauge that present age of a person is a critical factor toward determining the insurance a consumer needs. For example, if a person needs insurance for his/her child’s education, it goes without saying that the policy will be useful only if it is bought at an early stage, i.e., when the child is still young.
Amount of Debt -
Ideally, a consumer should clear most of his/her debt before purchasing an insurance policy. This helps ensure timely payment of premiums. At least, some smaller loans such as personal loans or credit card loans should be cleared.
