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How much Life Insurance does one need?

How much Life Insurance does one need?

Mortality is one of the main characteristics or key events of human existence. Death happens to everyone and it is always uncertain; but a carefully executed life insurance policy can help prepare for life's uncertainties such as creating provisions for your family and loved ones following your death. Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money in exchange for a premium, upon the death of the policy holder. A life insurance plan can ensure financial security for your loved ones and provide you with peace of mind knowing that the future of those who depend on you such as your spouse, children and dependent parents, is secure.

But how much Life Insurance does one require is a decision which must be carefully deliberated upon before taking up a policy. Even though it is impossible to get exact figures, experts recommend a life insurance policy should be approximately 5 to10 times the annual income of the insured. This is only a rough estimate and the answer really depends on how much money you think your dependants will need after your demise. Having said that, we've tried to simplify the process of figuring out the right Insurance Cover (Sum Assured) for you. Consider the following three steps:

Income replacement or future financial obligations

The most important question is how much income so the people dependent on you need if you aren't around. Outline your family's cash-flow needs as well as financial goals. Determine if you have enough coverage to pay for future financial obligations such as college for your kids or your daughter's wedding. Consider the priorities and take into account your standard of living, income and spending habits before you arrive at the benefit you wish your dependent ones to receive at the time of your demise. Add it all up to figure out the estimated amount of money that your survivors would need. That's Step 1!

Evaluate your family's needs and tally up the resources

It is extremely important to figure the budget in running your household and consider the money that would be available including your spouse's income and other sources of income besides your job. A life insurance policy should pay for immediate expenses and offer critical illness and disability rider to help in case of personal hospitalization and medical expenses, as well as funeral bills and taxes. The difference between your family's financial needs and the available resources will tell you how much life insurance you will need.

Personal Debts

One also needs to consider debts or loans that you have. You wouldn't want to burden your kin with your liabilities. All of your debts must be paid off in full which might include car loans, mortgages, credit cards and loans amongst others. Use a personal budget software package or your bank statements to estimate your spending. And if you are saving money regularly and living within your means, you probably don’t need to replace all of your income and need less term life insurance.

Now to the difficult part - let's say you have a figure 'x' in front of you after adding up the results in the three steps above. This 'x' amount of money is what you/your family would need 'y' years in the future. The value of this 'y' could be 10, 20 or 30 years depending on your age and life stage. If you know your math well, you would have figured out that we are trying to explain the present value concept. For the rest, imagine if you had the 'x' value of money that you calculated earlier, available with you right now and you could put it in a bank. By the end of 'y' years that money would've grown on account of interest. The total that you get after doing the math is the amount of insurance you need. That's one of the many ways of calculating the value of Life Insurance you need. We urge you to spend time and do this calculation, or if you want to take a short cut just use our Life Insurance Calculator

Oh and of course, no one has the 'x' amount of money to put in a bank right away. Although we wish! And that is precisely why each one of us needs Life Insurance.

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Annual Income (In Lacs)

Frequently Asked Questions (FAQs) Related to Life Insurance Policies

The premium is one of the most important factors to consider before buying a life insurance policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of www.canarahsbclife.com.

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance plan. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Life insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age: It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chance of contracting diseases is low. Young people also opt for the best life insurance policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender: The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits: The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term: Policy terms are also taken into consideration by insurers while deciding the premium amount. Life insurance policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the best life insurance policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation: The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physician’s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence, there are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the life insurance policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance plan.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: A life insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the life insurance policy, the insurance companies generally pay 80% of the total premiums paid.

Buying the best life insurance plan online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. The best life insurance policies online insurance offer higher benefits. Customers should, however, buy online life insurance policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one life insurance policy to increase the cover or avoid claim rejection. In case of multiple life insurance policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy a life insurance policy, the insurance company asks for the nominee details. Only the person named as the nominee in the life insurance plan can cash out in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term, the beneficiary receives the death benefit. In case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment option is chosen, the policy works as a source of regular income.

It is a popular misconception that life insurance plans are only for accidental deaths. A term life insurance plan like iSelect Star Term Plan also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy a life insurance plan in your early 20s because it is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy the best life insurance plan at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why life insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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