1. Your Present Annual Income
The first critical factor that you should keep in mind while deciding your life insurance cover is your current annual income. While initially it was recommended that your insurance cover should be 10X your annual income, but now due to inflation and the rising cost of living, your insurance cover needs to be even higher.
Suppose your annual income is Rs. 12 Lakhs. Your ideal life insurance cover would be Rs. 2 Crores 40 Lakhs. This amount would be prudent in supporting your family’s annual expenses and maintaining their standard of living in your absence.
2. Your Financial Liabilities
Your current and future monetary liabilities is another factor that plays a role in determining your ideal life insurance cover. These liabilities include outstanding loans, or debts that your family would have to repay in case something were to happen to you. This can be challenging for your family, especially if you are the sole breadwinner in the household. Therefore, it’s vital to account for these liabilities while deciding your life insurance cover.
Aside from these liabilities, you should also account for your liquid or near liquid assets that could help your family cover for these liabilities. These assets could include bank deposits, mutual funds or stocks and can come in handy in catering to financial requirements.
3. Your Financial Goals
Needless to say, your financial goals play a vital role in determining the appropriate life insurance cover for you. The fundamental reason why insurance is needed is for helping your family maintain the standard of living you, as a breadwinner, set for them in case of your early passing.
This includes your children’s higher education, marriage plans, a secure life for your spouse and other such goals. Thus, you should factor in these goals while deciding your life insurance cover.
4. Your Age
The age at which you’re purchasing your life insurance policy can also impact your ideal life insurance cover. This is what also makes it incredibly important to review your life insurance policy regularly.
5. Your Coverage Duration
While deciding your life insurance cover, you must also choose your tenure carefully. You must choose a policy that covers you until an older age and ensures your family is protected under all circumstances.
If you’re still wondering how much life insurance do I need in India, you can also use online life insurance cover calculators to help you get a clear idea of how much life insurance cover you need.