Home / Money / Personal Finance /  How to assess the right amount of life cover?

One of my friends suggested that I buy a term insurance plan with sum assured equivalent to 10 times my annual salary. Is this the standard rule or are there different ways to assess an individual’s insurance needs?

—Name withheld on request

It is difficult to give a specific number for an individual’s life insurance cover, since it depends on several factors like age, gender, annual income, health and lifestyle, etc.

Buying a sum assured equivalent to 10 times the annual salary is one of the ways to assess your insurance need, and arrive at a bare minimum insurance cover. However, you may follow a more practical approach when buying a term insurance plan.

Start by evaluating your future life goals and the estimated amount required to achieve them. Then factor in your lifestyle expenses, existing liabilities and the expected rate of inflation.

This figure will help you decide the amount of life cover you may require to protect your family’s financial future needs. It is also advisable to revisit this amount periodically, as your financial situation and life goals may change over the course of time. You may access several tools and calculators available on the internet to come at a figure that will be most suitable for you.

Life insurance companies offer various payout options right now. How can I choose the best payout option for myself?

—Name withheld on request

Insurers may offer flexible payout options to help customers to use the life cover amount as per their needs. Depending on your life goals and financial needs, you can opt for lumpsum or periodic payouts or even part-lumpsum and balance in instalments.

Lumpsum payouts are typically suitable for meeting bigger expenses such as child’s higher education or wedding, foreign vacations, etc.

For someone looking to get a supplementary source of income, periodic payout options (monthly, quarterly, annual, etc.) can be useful to meet the day-to-day expenses.

Sameer Joshi is chief agency officer at Bajaj Allianz Life Insurance.

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