What Percentage of Income for Life Insurance Should be Allotted?

When it comes to buying an insurance policy most people are clueless with regards to how much to invest. Read on to know more about what percentage of salary you must invest in buying a policy.Everyone needs insurance protection. It is one of the most vital requirements of life. From a life insurance policy to car insurance, you must have different insurance coverage to get financial protection against losses.
The insurance industry in India is growing at a rapid pace. And, today, as a customer, when you are looking to buy a policy, you have plenty of choices. While you spend time understanding the different types of policies available in the market to know which policy suits you the best, you must also stress on much you need to invest.Let us look at the percentage of salary you must invest in different types of insurance policies.

Life insurance is a must-have investment for all. It gives your family the much-needed financial protection in the event of your unfortunate and untimely death and helps you secure their future even in your absence. There are different types of life insurance policies, but the most popular one is the term plan.Many insurance experts that every individual must invest in term insurance . This type of policy provides coverage for a specific period. And, in the event of your demise during the policy tenure, the insurer will pay the death benefit (equal to the sum assured) to your family. But, if you outlive the policy, there is no survival benefit. One of the primary reasons many people purchase a term plan is that it has the lowest premium among all other life insurance policies.While deciding how much you should invest in a term plan, you must follow the rule of thumb. The sum assured must be at least 10 to 12 times more than your current annual income. This will ensure that your family receives sufficient compensation to take care of the debts (if any) like home loan, credit card bills, etc. and still have enough money to meet the regular expenses.Let us understand this with an example.Suppose you are currently earning Rs. 60,000 per month, then you must choose a life insurance cover that is 10 times than your annual income. 60,000 x 12 = 7,20,000 x 10 = 72,00, 000

Apart from a life Insurance policy , everyone must invest in health insurance. With the modern sedentary lifestyle becoming a norm, the number of people, especially youngsters suffering from chronic illnesses have increased tremendously. And, in the purview of the rising medical inflation, the treatment expenses are increasing every year.In such a situation, having a health insurance policy is vital to cover the treatment expenses without depleting your hard-earned savings. The key to getting the maximum benefit from a health insurance policy is to have sufficient coverage to suit the specific needs of your family.Experts suggest that you must invest about 2-5% of your salary in health insurance. So, if you earn a monthly income of Rs. 1 lakh, it is advisable to get health insurance that costs between Rs. 2000 to Rs. 5000. If you or any of your family members is at risk of suffering from a critical illness, it is better to purchase a health care plan with higher sum insured.Also, you can consider buying add-on covers or increasing the sum insured periodically as your income increases so that you can maximum coverage against the healthcare expenses.

There are other forms of general insurance like home insurance, car insurance, etc. If you own a vehicle you must purchase a motor insurance . It is a mandatory requirement, and driving without a valid insurance is a punishable offence. Make sure that you assess your insurance needs and purchase a policy accordingly. Thankfully, there are plenty of options that you can choose from.Similarly, if you are nursing a home loan, it is better to purchase a home insurance policy to cover the mortgage. This will help your family safe from facing the repayment burden if something happens to you. To know how much you should invest in your home insurance, it is advisable to calculate the outstanding amount and choose a policy that is enough to repay the full amount.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.