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How much insurance do I need? Enough to save family from debts

Make sure that the amount you insure yourself for should take care of your liabilities in event of untimely death.

Apnainsurance Research Bureau

20 Dec 2007

Once the decision to purchase life insurance has been made, then you need to determine the amount of insurance required to secure your family's financial needs and risks.

An average Indian insures herself or himself for Rs. 100,000 to Rs. 200,000. Now, ask yourself a simple question. In fact, even if you do not belong to the unfortunate above-mentioned category and feel that you have insured your life for an adequate sum, ask this question:

If you are the breadwinner in your family or a likely significant contributor to the household expenditure, is your life insurance amount sufficient to take care of your family's lifetime needs if you pass on?

The answer more often than not is an emphatic NO.

How long could a spouse and other family members sustain their lifestyle on a Rs. 100,000 or Rs. 200,000 insurance claim payout? Keep in mind that you were the principal earning member of the family and you are no longer there to take care of them.

So, let's start with a general rule of thumb:

You should insure your life for at least ten to twelve times your present annual income. This amount is considered to be adequate for a family to sustain themselves at present expenditure and lifestyle levels until they recover from the financial loss caused by the breadwinner's absence.

However, if you use only the rule of thumb, you are not incorporating your present financial state i.e. your savings, actual and/or expected household expenditure, loans and liabilities, present insurance cover, etc. As a result, you may not get an accurate picture of what your insurance needs are.

In order to determine the amount of insurance that is adequate for you, use an Insurance Planner. This planner will help you with an easy step-by-step procedure to estimate your family's financial requirements, taking into account your present financial condition. Once you are aware of the estimate, you will have a much better idea of the amount you must insure your life for.