The only reasonable way of deciding what and how much insurance you need is to unemotionally create a financial plan that your family should follow if you die suddenly. Families also have to consider the impact of both parents passing away in an accident. The impact of such a tragedy could be greater than just the sum of two deaths occurring separately. Here are five things to consider.
When it comes to 'how much sum assured' it is better to avoid thumb rules, as the sum that would be adequate would differ for different people. The best person to decide on the amount will be the one to be insured. Sum assured should be purely based on current lifestyle, annual family income, annual expenses, current investments (if any), and liabilities like home loan or education loan overhead. The final value after considering these figures will be the Life value of the prospective insured. Most insurance companies provide a 'Human Life Value' calculator on their website to ease the task of calculations. Do not forget to consider inflation, as the purchasing worth of Rs 100 today will erode with time.
It is very important to figure out the apt cover because a higher cover would make you pay for protection that was actually not required, while a lower 'sum assured' may not be able to take care of the financial needs of your family in an adverse situation. Most insurance products come with a minimum and/ or maximum sum assured under their products. It is important to check if the sum assured on the offer matches your requirement.
Also, one must compare the price of policies from different insurers and their claim settlement ratio. Some policies give discounts on a higher sum assured or charge a lesser premium from females. However, sometimes discounts can also be a marketing gimmick, with the premiums for these policies weighing on the higher side.
This kind of unemotional, careful, and realistic thinking is really the heart of making a sudden-death financial plan. Don't shy away from it. The fact is that Indians have a deep-set cultural antipathy against planning for their deaths. A minuscule number of Indians make a will. Even the country's most successful and rich entrepreneur, who organized everything else about his business so carefully (and whose death was not sudden), died without making a will and left his two sons to fight public battles for their inheritance.
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