Is it worth covering your life?

Is it worth covering your life?

We usually do not give importance to life insurance, despite being aware of the fact, that it could play a very important role for our financial well being. Many of us tend to consider it as an unnecessary expense, which is a misconception. To secure your future financially, insurance cover is a must, while you should also see to it, that you have adequate insurance.

If you have not covered yourself sufficiently, you always face the risk of not securing your family against any unexpected contingency. Also if your insurance cover is more than what you may actually need, you are paying extra money, which could be judiciously utilized for savings and investments.

Life insurance not only helps in safeguarding the financial needs of your family against the risk of sudden loss of income due to the unexpected death of the insured, but also provides tax benefit.

Generally there are four types of LIFE INSURANCE PLANS available in the market. A WHOLE LIFE POLICY provides you insurance cover against death. The premium is regularly paid by the policy holder until his death and benefit is given to his family after his death.

While in TERM PLAN the policy holder pays the premium for a specified period and if the policy holder survives the policy term then nothing is given to him. This plan provides no maturity benefit and has the lowest premium cost. Unlike term plans, ENDOWMENT PLANS provides the maturity benefit both in case of death and survival.

These plans have slightly higher premium cost than term plans. UNIT LINKED INSURANCE POLICIES (ULIPS), are the most innovative insurance products preferred by everyone today as they provide you both insurance and investments. These plans are market-linked i.e. they have exposure both in equity/debt markets.

They also provide the maturity benefit both in case of death and survival, but have highest premium cost among all life insurance policies.

However, before buying a Life Insurance Policy you should take into consideration factors like: Your age and number of people dependent on you; Present income and expenditure; Present debt and liabilities like home loan, car loan and so forth; Current investments and savings and Surplus you would require in future.

As a thumb rule your first Life Insurance Policy should be at least 5 to 10 times of your annual income. However there are few methods available to calculate the insurance need. In premium-based calculation, premium payable decides the amount of sum assured, as premium is payable from your disposable income either monthly, quarterly or yearly.

So based on your present cash flow the sum assured is decided. Also there is a human life value calculation wherein we calculate the present value of all future income with a reduction of personal expenses. We then add all the existing debts to this amount and obtain the human life value.

The need for insurance changes and increases with age and factors mentioned above. Generally it is advisable that after every three years you should review your insurance needs. Every individual is different and has different needs so none of us can actually make a statement like: ‘You should take this much of insurance.’

Either you can assess your needs and risk for your life insurance cover or take the help of an insurance or financial advisor to know the appropriate insurance cover for you, but under no circumstances ignore it.

 

 

Thanks & Regards

 

Aditya Kachru

Financial Consultant

 

INVESTORS PLEASE LISTEN !

9818269396  | 9810269396 | 01204105997 | aditya.kachru@gmail.com

 

Read :Lesson from 2008