How to Make Life Insurance Part of Your Financial Wellness Plan

How to Make Life Insurance Part of Your Financial Wellness Plan

Life insurance is an essential element of any solid financial plan. However, many avoid purchasing life plans due to misconceptions or not knowing where to start. This blog post will discuss why having life insurance is vital for your family's financial security, how to determine the right amount and type of coverage and provide tips for affordably incorporating life insurance into your financial wellness strategy.

Why Life Insurance Matters 

Life insurance provides a safety net for your loved ones in the unfortunate event of your passing. The payout from a life policy helps replace your income so that your family can maintain their standard of living even after you’re gone. When purchasing life insurance, it is wise to compare quotes from leading insurance providers to find the most affordable premiums that fit your budget.

 

Here are some specific reasons why life insurance should be part of your financial plan:

 

• Covers Outstanding Debts: The proceeds from a life insurance policy can be used to pay off debts like home, auto, and personal loans so that your family does not inherit this burden.
• Funds Child’s Education: Losing a parent is traumatic enough for a child, so why compound the difficulty with financial worries? Life insurance can easily alleviate this burden, allowing children to pursue their academic goals without financial strain. Life insurance proceeds can be used to fund your child’s higher education expenses fully.

 

• Provides Financial Security for Spouse: For families with two earning members, losing one income can severely impact a household’s finances. Life insurance ensures your surviving spouse has capital and does not need to worry about money, at least for a few years.

Calculating Life Insurance Coverage

The first step towards purchasing life insurance is determining the coverage you need. Some standard methods to calculate the ideal cover are:

 

• 10 to 15 Times Your Annual Income: As per the thumb rule, your life cover amount should be 10 to 15 times your current gross annual income. So if you earn ?15 lakh annually, your policy amount should be between ?1.5 crore to ?2.25 crore.
• All Outstanding Debts + Other Goals: Add up the current values of any loans, credit card debt, etc., along with the costs of primary future financial goals like children’s higher education, retirement corpus, house purchase, etc. This total figure is the minimum cover you should have.
• Human Life Value Method: Calculate your family’s monthly household expenses and multiply this by the months they would need support without your income.

Choosing the Right Type of Life Insurance

There are several types of life insurance policies available in India. Review the key features of each to decide the most suitable one for your needs:

Term Life Insurance

• Pure life cover only, no maturity benefits
• Covers you for a pre-defined policy term like 5/10/20/30 years
• Lowest premiums compared to other policy types
• Best suited for replacing lost income, covering debts, and funding children's education needs.

Endowment Plans

• Provides life cover + maturity payout
• Higher premiums compared to term plans
• Helpful in meeting the dual needs of family protection and saving for future goals

Unit-Linked Insurance Plans (ULIPs)

• Offers life cover + investment features
• Premiums invested across equity and debt funds
• Returns linked to capital market performance (potential fluctuations and risks involved)
• It is helpful for individuals wanting insurance and market-linked returns in a single product

Whole Life Plans

• Provide lifelong protection until the age of 100 years
• Premiums are payable for 5-30 years while cover continues until death
• It is designed for individuals who want lifelong protection

 

Evaluate your specific insurance need, lifespan of requirement, budget, risk appetite and expected returns to decide which type of life insurance plan to purchase.

Ways to Get Affordable Life Insurance

The good news is that life insurance can be affordable if purchased correctly. Here are handy tips to get affordable coverage:

 

• Buy When Young: Life insurance premiums are lowest when young and healthy. Delaying purchases can mean paying higher premiums later.
• Prefer Term Insurance: Term plans are the most economical form of life insurance. Their affordability depends on coverage needs, individual circumstances, and other factors.
• Improve Health & Lifestyle: Being active and maintaining a healthy lifestyle, including avoiding tobacco consumption, can make you eligible for lower premiums.
• Compare Quotes Online: Use insurance aggregators such as ACKO General Insurance to compare quotes from multiple insurers and find the most competitive pricing.

Conclusion

Life insurance is a fundamental pillar of any family's financial plan to ensure their loved ones don't suffer from money worries even in one's absence. Determine an adequate policy amount, evaluate different policy types, use premium reduction tricks and get insured early in life to effectively integrate affordable life insurance into your overall financial wellness strategy.