What do people fear most? It is an uncertainty of life, which makes people worry about their loved ones. So, there must be a solution to this problem, which will at least cover your loved ones financially in case of need or contingency! Yes, there is indeed a solution – insurance. Insurance will help cover the insured and/or the family of the insured. This article will help you understand a few important things like the importance of insurance, how to choose insurance and it will answer the most important thing – how much should be the coverage and why?
Types of insurance which deal with most important aspect of contingency management
- Life insurance: – Life insurance will cover the most uncertain thing in life which is – death. There are again many subtypes under life insurance. There is a term plan which will need the insured to pay a fixed sum for the predetermined time. There is also an endowment policy which will provide survival benefits along with death coverage.
- Health Insurance: – Health insurance provides coverage for the medical emergencies and hence second most important. Most of the employees have group health insurance but it needs to be analyzed and assessed whether your group insurance covers the potential liquidity needs and is optimum or not. If not, then it is time to raise your sum assured which will help you cover the unexpected medical emergencies. It is always suggested to have medical cover over and above the cover provided by the employer.
In this blog, we will focus on Life insurance only.
So let us see how to assess whether you have enough life coverage or not?
- Loan coverage: – Needless to say that we all have some kind of debt burden, be it in form of housing loan or be it in the form of car loan or any other type of debt. Make a list of all such loans and arrive at an approximate figure of total loan repayment. If your total sum assured takes care of this loan liability, you are safe, otherwise, it is time to raise your stake. This will help your family to pay off the debt in case of any unfortunate event.
- Routine expenditure: – This includes basic expenditure like power, rent, grocery expenses, etc. which can’t be avoided and must be incurred for survival. Add up all your sum assured and/or retirement income and factor with the expected inflation rate. If your sum assured could cover this inflated required sum then you don’t need to touch your insurance.
- Lifestyle expenditure: – These are the expenditure which is incurred to maintain a lifestyle. So, this will cover pretty much basic expenditure like vehicle maintenance, second home repairs, renovation expenditure etc. These are the ones which are hard to locate, but if considered at the earliest, even these expenditures are easy to cover.
- Savings to income ratio: – If you save almost around 35% or more of your income, then it is safe to say that you need not invest more in life insurance. For e.g. consider that you have been investing 30% of your income in mutual funds having an approximate rate of return of 10-12%. Also, that you have invested in term insurance which will cover your family in case of death of the insured. In such a case, you need not divert your further income towards the term insurance since your mutual fund investments will take care of it, So you should buy Insurance along with SIP for your betterment.
- Investment goals: – You may wish to marry off your children lavishly or you may be wanting to provide them with the best education. But all of it comes with a cost, and to provide for it your family will need strong financial support. You can easily achieve it by investing in the right kind of insurance. There are many insurance policies which are tailor-made for such events which help you cover these expenses even if you are not there with your loved ones.
Instances when you need to raise insurance coverage
- Getting married: – When you started earning, you may have thought only about yourself and your parents. But, when you get married, you need to think of your spouse also in terms of insurance coverage. You need to add your spouse to your nominee list too.
- Starting a family: – When you hold your new bundle of joy in your hands, the first thing that comes to your mind is about its safety and security. This is another major event when you need to restructure your insurance investment. When a child is born, you need to raise your sum assured to cover the additional expenditure.
- Additional income: – When you earn a promotion or income raise, it is time for you to consider a corresponding increase in sum assured. This will help your family to incur and adapt to the better lifestyle needs even when you are not around.
- Additional loan : – You may invest in a second home or a new car by resorting to loan for the same. But, while you take the loan, you need to think about repayment of the loan when you are not around. If not taken care of, generally this additional asset may be termed as a burden due to loan repayment by the nominee or heirs. To avoid this situation, you need to increase your sum assured to such an extent so that it will cover at least a major part of the loan repayment.
So these were some of the instances where you should be increasing your life insurance cover to keep you adequately insured at all times. You may download the Fintoo App to get a suitable insurance policy for yourself.