No matter how much money a person makes, buying life insurance is a significant financial decision. Suppose you have kids or a lot of debt. In that case, you should consider getting a life insurance policy to protect your family financially. But you shouldn’t just choose any life insurance policy at random. Instead, you should always research and determine if the coverage offered meets your needs.
Life insurance coverage comes with several built-in features, and the price of a policy is based on several different things. One of the most important determinants of what kind of life insurance policy you should ideally buy depends on your income. Here’s a guide on how to choose the right life insurance policy based on your income.
Before deciding on a policy, it is essential to figure out how much coverage you need (the sum assured). You can figure this out simply by adding up your daily expenses, your upcoming financial obligations (debts), and other unavoidable costs like your children’s education, your wedding, etc. Here are more details about some of these factors:
- Current Expenses: The main reason to buy life insurance is to ensure that your family’s way of life won’t change in any way if you pass away. Some of the highest expenses are education, household expenses, other premiums, and miscellaneous expenses. As an insured person, you need to figure out how much these costs will be for a year and consider inflation.
- Income Multiplier: Using your income as a multiplier is another good way to determine how much insurance you need. In this method, you multiply your income by the age group factor you belong to. So, you can figure out the minimum and maximum amount of life insurance you need based on your age group and income. To use the income multiplier method, you will have to subtract your expenses from your net income and then use the multiplication factor. You can use this table as a guide.
|Age group||Minimum Multiple||Maximum Multiple|
- Properties and debts: Buying a house is something that requires a lot of money. Most people have to get a home loan to pay for it. The insured must add their home loan and any other debts to their list of liabilities. They must also make a separate list of their assets, such as gold, investments in the stock market, fixed deposits, etc. By adding up a person’s assets and debts, one can figure out how much sum assured they would need.
You can also use a life insurance premium calculator This takes your income and various other factors into consideration. A life insurance premium calculator can help you determine the best policy for your needs. That being said, life insurance policy calculations shouldn’t only be done when the policy is bought. Instead, they should be looked at once every five years. So, if you need to, you can purchase more policies to help your family financially. Using this method, you can also figure out how much sum you should have.
Riders can be added to most insurance plans. What are insurance riders? Riders are extra benefits that you can add to your current life insurance plan for a reasonable price. Riders are helpful aids that can help you get more out of your life insurance. An add-on to your life insurance policy can raise your premium at a nominal rate, so you may wonder if it’s worth the added money. In the end, it depends on your needs and your budget. Most likely, you don’t need to buy every rider your insurance company has to offer. So, do the math correctly before you add any life insurance rider plans.
Another factor to remember is that the premiums of life insurance plans, have some kind of tax deductions available based on the law. However, the amount of tax deducted depends on whether you follow the old or the new tax regime. Taxes are always subject to change.
In conclusion, many people should ideally buy life insurance sooner or later. But it’s very important to know what kind of life insurance policy will work best for you based on your needs and how much you should choose for the sum assured. If you decide to buy the policy online, don’t forget to compare life insurance policies online so that you buy the policy that suits your needs and with enough coverage that can help you when you need it.