“How much coverage is enough?” In such a challenging time there is a large number of people without relief and in need of a particular amount of cover from their life insurance scheme if they do not have enough of it.
Why is Determining the Right Coverage Amount Important?
Life insurance is usually in place to provide financial security to your family following your death. There is real need to select the right coverage as too little can leave your family in dire straits and too much will lead to extortionately expensive premiums.
Prioritizing the urgent needs for outstanding debts, medical bills, and funeral arrangements is a first priority. Make sure your family will be comfortable living in the same way, without financial worries. Next, think about ultimate objectives, including financing your kids’ education, or saving for the retirement nest egg of your partner. It is the key to having the right balance to secure the future of your family.
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Key Factors to Consider When Calculating Your Coverage Amount
1. Assess Your Current Financial Obligations
Try to create a list of your existing liabilities. This could include all arrears, mortgages, consumer loans, and commodity loans. Furthermore, you should never, for granted, rule out accrual/ monthly expenses or accrual/ future obligations, i.e. the costs of education of your child or the costs of your own wedding. For example, if you have borrowed ₹30 lakhs for acquiring the house and wish to spend ₹15 lakhs towards your child’s education, both of them are required to be listed in the summary.
2. Evaluate Your Income Replacement Needs
Your family would be dependent on the income for a long time in the future. But again, now, as one general guideline, one should have a cover of 10-15 times the annual income so that your family can meet all the expenses and carry on the lifestyle.
If your annual income is nearly ₹8 lakhs, then you would need the cover amount of almost approximately ₹80 to ₹1.2 crore.
3. Consider Inflation
Inflation slowly consumes the purchasing power of money, thus eroding its value in time. Today’s seemingly good amount may not be enough for tomorrow. Consider policies that take into account inflation or allow you to step up your coverage over time.
4. Account for Existing Savings and Investments
When deciding the coverable amount, subtract current savings and investments from the total requirement. For instance, if you have an investment of ₹10 lakhs, you can reduce this much in the coverable amount also.
5. Think About Long-Term Goals
Ensure your coverage supports significant future milestones, such as:
- Funding your child’s higher education.
- Ensuring your spouse’s retirement corpus remains intact.
- Creating a legacy for your loved ones.
6. Add a Safety Buffer
Life is unpredictable and not always predictable. A buffer of 10-20% ensures you have taken care of uncertai
Methods for Determining Your Coverage Amount
- Human Life Value (HLV) Method
This method computes the economic value you provide to your family during working years. Estimate your annual income and subtract taxes and personal spending. Multiply that value by the number of years you will work.
For example, let’s say your income is ₹10 lakhs and you spend ₹2 lakhs on personal expenses. Your economic contribution is therefore ₹8 lakhs. Multiplying by 20 working years gives a cover amount of ₹1.6 crore.
- Needs-Based Approach
This approach involves determining your family’s needs and working out the sum needed to meet them. Use the following:
- Immediate expenses such as loan repayments and funeral expenses.
- Recurring expenses such as daily bills.
- Future objectives such as education and retirement.
- Rule of Thumb
This is a quick estimate of coverage by multiplying by 10-15 your annual income. Again, this is simple but may not consider inflation or individual needs.
How HDFC Life Insurance Can Help
HDFC Life provides an array of comprehensive life insurance covers based on your individual needs. Here’s how HDFC Life can help you calculate the right coverage amount for you:
- Flexible and Customizable Plans
As a customer of HDFC Life, you can add its available add-ons and riders to customize your policy according to your family’s needs.
- Innovative Tools for Easy Calculation
Calculating Coverage Needs with Ease Use HDFC Life Insurance App to calculate your coverage needs easily. The app comes with intuitive calculators that help you determine the sum assured to be ideal for your income, liabilities, and your goals.
- Grow with You
Through products such as increasing coverage policies, HDFC Life will make sure that you keep pace with inflation and other changing financial responsibilities.
- Affordable Premiums
With HDFC Life, you always get the best value for your money without compromising on coverage.
- Trustworthy and Consistent
HDFC Life is an established name that has been providing reliable financial security to several millions of households.
Step into the Future with Confidence
Selecting the appropriate life insurance plan would be a very crucial step towards securing your family’s future. Taking into consideration all the financial obligations against your need to have income replacement and all your long-term goals will surely help determine an assured sum that is made with peace of mind.
Let HDFC Life Insurance be your companion on this journey. Download the HDFC Life Insurance App today and explore the vast array of plans designed to secure your dear ones’ future. With advanced tools, expert guidance, and reliable policies, HDFC Life is always ready to face whatever life has in store for you.
Today, HDFC Life Insurance secures your loved ones’ future. There’s no room for compromise when it comes to protecting your loved ones.
