One of the questions in financial planning is the most important. That is, if there is any untoward with the earning member of the family, then what will happen to the people who depend on it? Who will meet the providers like home loan? Can a person make such a huge save for his loved ones that is enough for them? One of the answers to all these questions is to take adequate insurance cover. It is often debated whether one should invest in mutual funds or in insurance policies. Firstly, these two are very different kinds of products. They don't have similarities. Mutual funds are primarily an investment option. Other investment options like real estate, gold are also of different importance in the vast financial planning. While insurance covers the risk.
How big your insurance cover should be?
Like other aspects of financial planning, it is equally important to question how big the insurance cover is. To get an answer to this question, you need to look at certain aspects.
What is the annual income now?
While deciding on the insurance cover, be sure to keep in mind what your income is at present and continue to be in the absence of any inconvenience to the family.
What are the financial responsibilities?
If there is any loan or other financial liability, it is also necessary to include it in the insurance cover. These liabilities include home loans, car loans, etc.
At which age are you planning?
If age is low, the responsibilities will be higher. Therefore, more cover is necessary. If children do not have the same responsibility as studies, homes, marriages, the cover size can also be done if it is small. However, don't forget that earning an old age is not possible, but expenses continue.
What are the financial goals?
If children are studying or have to marry, it is also necessary to include the expenses in the cover.
What is the basic rule?
Calculating how big the cover may seem like finding a solution to a difficult math question. But, here too, a basic rule comes to your job. In developed countries, this basic rule states that your insurance cover is at least 7-10 times the annual earnings. This means that if your annual earnings are Rs 10 lakh, the insurance cover should be between Rs 70 lakh and Rs 1 crore. The expert says that in developing countries like India, where inflation is higher than that of developed countries, the insurance cover should cover 10-15 times. That means, if your annual income is Rs 10 lakh, the insurance cover should be Rs 1-1.5 crore. Thus, if a person earns Rs 5 lakh annually, the adequate insurance cover should be Rs 50 lakh to Rs 75 lakh (plus liabilities). You have to pay the insurance premium every year. So keep your age in mind.
Because of all these aspects, good planning for mutual funds, fixed deposits, and insurance covers. Choose different investment plans according to different responsibilities. So you can easily avoid economic troubles.
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