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Business News/ Money / Personal Finance/  Financial readiness: 4 factors to examine your life insurance coverage

Financial readiness: 4 factors to examine your life insurance coverage

Financial readiness is a key to smooth life goals, serving as a crucial pillar in personal finance. Assessing and maintaining financial readiness ensures a journey towards a lifetime of risk-free financial health.

Financial readiness is a key to smooth life goalsPremium
Financial readiness is a key to smooth life goals

Financial readiness is the ability to navigate life's needs, wants, and uncertainties by critically evaluating one's income, budget, spending, avenues to maximise and save the said income, plan for emergencies, and for future retirement.

Why is it important to assess your financial readiness?

Financial readiness enables one to ensure there are no speed bumps in one's life goals. Assessing financial readiness stands as a critical pillar of personal finance, enabling individuals to embark on a journey towards risk-free financial health throughout their lifetime.

Four factors to examine your life insurance coverage

The amount of insurance coverage that people need will vary depending on their individual circumstances. As a general rule of thumb, one needs to plan for anywhere between 13 times to 20 times their annual income. In addition to this, there are some guidelines across factors to understand how much comprehensive coverage is required:

Current income: This is the first step one may start with when planning to buy life insurance. This allows one to calculate how much they will need to sustain their current lifestyle while also helping them understand what their premium-paying capacity would be.

Current expenses: The next step is to look at one's current expenses across all facets of life—living expenses, holidays and travels, medical expenses, and others.

Dependents and their financial goals: Life insurance, in most cases, is a financial security blanket for dependents in case of an unfortunate event, acting as income or expense replacement, allowing them to pursue their goals. Hence, it is important to assess the financial goals of each dependent and estimate the life insurance coverage required to meet these goals.

Future expenses and financial liabilities: One may look at future expenses from the perspective of desired lifestyle, major asset purchases, major life events such as children's education, etc.

How to choose the right life insurance plan for your needs

There are a few key factors that can help one decide on the right insurance plan for their needs:

Type of insurance: There are many different types of insurance plans, so people need to choose the right type of plan that suits their needs. The first and foremost consideration is a protection plan, along with goal-based plans such as a savings plan, investment plan, etc. Some popular categories are guaranteed savings products, given the majority of India still prefers capital preservation.

Policy benefits: It is crucial to read the policy and understand the benefits and features carefully to know what is being offered. This can help people better align with their goals when purchasing a life insurance policy.

Premium: Insurance premiums can vary depending on the type of policy and the person's age and health. It is better to invest in a life insurance policy at an early age to avail the benefit of lower premiums.

Tips for increasing your financial readiness

  • Start early
  • Have a framework and a journey towards the lifestyle goal
  • Review your finances regularly. Make sure your plan is still on track and adjust as needed
  • Spend sufficient time to understand and evaluate your needs, wants, and uncertainties comprehensively
  • Have a fund for emergencies
  • Above all, invest in your mental and physical well-being

Nitin Mehta, Chief Customer Officer and Head – Marketing, Digital and Online Sales, Bharti AXA Life Insurance

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Published: 09 Nov 2023, 04:07 PM IST
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