An individual runs the risk of premature death or living too long. Life insurance policy is designed to pay out an amount of money if you die during the time limit set out in the policy. Life insurance provides its beneficiaries with the financial coverage upon the demise of the insured person. A contract is signed between the insured person (client) and the insurance company under which the insurance company has to pay an assured sum of money to the nominees of the insured person. It is difficult to think about the effect your death would have on those you love and care about. But it is important to plan for their needs and to look at how your death may affect them financially.
No matter how much you earn, it is important to make sure that your dependants (people who rely on you for emotional and financial support) have enough money to live on when you die. A life insurance policy can protect your dependants against financial hardship by paying them a lump sum after you die.
Need for taking Life Insurance
Life insurance provides retirement fund, children’s education, continuity of income, marriage expenditure, and protection against disabilities. A life insurance policy assures complete peace of mind as it prepares the family to face any financial crisis in case of untimely death of the insured person. Life insurance also serves as a tax saving mechanism, and hence plays a crucial role in the process of one’s financial planning to secure the future of the survivors. Life insurance offers secured saving mechanism for business capital mobilization.
How much Life Insurance Do I need?
Life insurance is like buying shares in yourself. “How much are you worth?” If you have a young family, you will need to provide a larger lump sum than if your children were older. That is because the benefits have to last longer. You will need to consider buying enough insurance to give your family an income for as long as they need it; cover bigger costs that might arise as your children get older, for example school fees; pay off any outstanding loan. However, answers to the following questions will provide a solution to the amount of life insurance you need.
- What part of my present income does my family need?
- How many years are left for retirement?
- What debt am I currently carrying?
- What are my monetary obligations?
- Do I have an emergency fund?
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