Are you covered for life insurance appropriately?

When considering buying life insurance, people get confused at the first stage itself, which is what amount of coverage to take. A common query is if there is some rule of thumb which can tell what is the appropriate amount of life insurance coverage to have? People want to understand how to calculate their coverage needs.

To evaluate if you are appropriately covered, consider first if it is appropriate for income replacement. Evaluate if the payout will be able to replace the policyholder’s future lost wages. Secondly consider the financial milestones, children education, marriages, home loans and other liabilities and see if you can visualize them being taken care of in the event of an untimely loss of life.

A common benchmark used is 10 times annual salary if you have children and a home loan.  This can be used as a starting point for planning and by analyzing your needs you can arrive at the appropriate coverage amount for life insurance. Some people may need more than that and some don't need so much. It depends on your situation and things like if your spouse works, the age of your children etc make a difference.

Ask yourself the reasons for buying a policy. Are you planning a family? Is it for your children’s education? Do you wish to provide for your spouse? Do you have debts and home loans? What amount will your family need to continue its standard of living without your income?

After listing all these factors one can use online tools and calculators to reach an estimate of coverage. By comparing and researching the various policies available, one can work backwards and see what levels of premium are affordable. It is advisable to consult experts and use professional expert advice to help you arrive at your decision.