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What is Minimum Life Insurance Policy?

Before purchasing life insurance, it is important to decide how much coverage you should get. Read on to know the deciding factors for minimum amount of life insurance required.

  • Oct 20, 2021
  • 1,624 Views

The innumerable memories we make life-long emphasises the importance of our life with our loved ones and how valuable the entire journey is. From handing over our first salary to our parents and getting married to funding our children’s education and planning retirement with our spouse, we work hard to make each experience memorable and fun-filled. Although these experiences are all we need to feel better, the unpredictable nature of life is what makes them all the more significant and treasured.

The safety, security, and well-being of our near and dear ones are at the top of our priority list, and the primary goal is to ensure that they have a bright future with a solid financial backup in the case of our unfortunate demise. As a result, buying a basic life insurance policy is a good place to start, but we must also decide the minimum amount of life insurance required to fulfil these goals.

What is the minimum life insurance policy?

This is a question that we should ask ourselves while buying a life insurance policy- what is the minimum life insurance policy?

Determining how much money our family will require is an important element of buying a life insurance policy. It basically refers to the bare minimum life insurance policy sum offered to our family in the event of our demise. While financial experts often recommend insurance coverage of at least 10 times our annual salary, insurance coverage requirements may vary from person to person.

It is essential to calculate this amount depending upon various factors, a few of which are discussed below:

  • Income Budget Ratio
  • The ability to provide a steady flow of income is among the most important features of our financial planning. In case we are the main caregiver for our family, we would need an insurance policy that offers sufficient payment to replicate our income for them to lead a comfortable life.

  • Sustain The Lifestyle
  • Ensuring that our family is able to maintain a basic standard of living is one of our top priorities. This is why life insurance is needed because it helps us safeguard our family against untoward situations, facilitating them in meeting all their basic necessities even in our absence. Therefore our current lifestyle becomes a critical factor to evaluate before buying a life insurance plan.

  • Manage The Debt
  • Any present or prospective loans, such as house loans, EMIs, school loans, motor loans, or personal loans, can be paid off using payouts received from a life insurance plan. Thus, while finalising the minimum amount for our plan, we should consider the debts and loans our family might have to pay in the future.

If we plan to buy life insurance, it is critical to understand how much and what type we need. We should assess our position and needs before going ahead with the purchase decision. It is advisable to make a list of our needs ahead of time while buying a life insurance policy to prevent being trapped with insufficient coverage or overpaying for coverage that we don’t require. To make the best decision, we must educate ourselves to get the best insurance policy available.

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