A simple formula to check your life insurance needs

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In general, the ideal amount for a life insurance policy can be calculated by taking into account your long-term financial obligations.

Need life insurance: The universal rule is that if you have a family that is financially dependent on you, you definitely need life insurance. “If you are the only employed person in your family and you maintain the current way of life of your family, take care of your spouse and pay off your debts, you must have a life insurance policy to maintain their quality of life. for the foreseeable future. Said Sajja Praveen Chowdary, Head of Term Life Insurance, Policybazaar.com. “A dependent can be your spouse, children, elderly parents, or any member of your family who is financially dependent on you,” Chowdary added.

The DIME formula: DIME, which stands for Debt, Income, Mortgage, and Education, is a formula that can meet an individual’s specific insurance needs by looking at their finances in detail.

Debt, income, mortgage, and education are the main areas you should consider when calculating your life insurance needs. The fundamental purpose of using the formula is to ensure that insurance coverage is adequate to meet the needs of dependents in the event of the premature death of the sole breadwinner.

Parag Raja, Managing Director and CEO of Bharti AXA Life Insurance, said it was essential to consider DIME and purchase life insurance because the claim money can help replace the breadwinner’s income. and enable the family to meet daily expenses. and maintain the way of life even if it will not replace the loss of the person.

“Claim money can help pay off existing loans (house, car, etc.) and unpaid debts. Money can also help pay for anticipated future costs such as education expenses for children. Due to the changing needs of customers in the midst of the pandemic, it is prudent to choose protective coverage that includes broad life coverage, ”said Raja.

Unpaid debts: It’s important to consider how much debt you would be leaving behind when you died. Unpaid debts can hurt your family’s livelihood if not properly accounted for.

“If you have a lot of debt, make sure you include it in your life insurance calculation so your family has enough coverage to pay off your debts. For example, you can start by adding all of your debts such as car loan (say about ??15 lakh) and mortgage (say about ??1 crore). In the given scenario, your family would end up with a debt of ??1.15 crore on your death. Given this amount, you would need life insurance with at least ??A sum of 1.5 crore insured to pay off debts and maintain the property, ”said Chowdary.

Income assessment: One of the most important needs of life insurance is income replacement. The next step is to estimate your annual income by simply calculating how much money your family needs to maintain the current standard of living. This is extremely important when you have a non-working spouse and children who are completely dependent on your income.

Based on your income and your family’s needs, you can determine the number of years your family might need financial support in your absence and multiply your annual income by that number.

Mortgage calculation: Another reason that requires purchasing life insurance is to have enough money to keep your family safe in your home. When buying a home, it’s common to take out a 20- or 30-year mortgage.

However, if you die before paying off your mortgage in full, your life insurance policy should pay off your mortgage balance.

Churchil Bhatt, Executive Vice President, Debt Investments, Kotak Mahindra Life Insurance, said: “The monthly payments equivalent to home loans generally leave a great dependence on the borrower’s future income. If you take out a large mortgage, it is best to take out insurance. In the case of existing life insurance, the life coverage can be increased to include the loan amount. This way, it will ensure that your family will not be burdened with unaffordable debts if something should happen to you. The amount of the additional coverage can be adjusted periodically to match the outstanding principal of the residual home loan in order to optimize the premium. “

Education estimate: For the last step, add up the estimated amount of education costs that would be required to send your children to college for higher education.

You will need to consider purchasing life insurance that would cover some or all of their graduation costs.

“Aim to have a death benefit that includes fees, room rent and books. So you should plan for a minimum of ??20 lakh per child for a four-year college education, ”said Chowdary.

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