The amount of funds you will need post your retirement will depend on various factors such as your current income, age, liabilities, and your financial goals. You also need to account for unexpected expenses and inflation rate. Your investment in life insurance should be such that it can sustain your existing lifestyle. You also need to ensure that the premiums you pay do not create a burden on your current finances. In case you want lower premium, you can opt for term insurance. Here’s how you can calculate the amount of investment in life insurance to secure your financial future post retirement.
Current income: Earlier, the rule of thumb was that your life insurance coverage should be around 10 times that of your current annual income. However, with increased uncertainty, rising cost of living and high inflation, it would be better to have coverage equal to at least 20 times that of your annual income. For example, if you current annual income is Rs 5 lakh, a life insurance cover of Rs 1 crore will be most appropriate for your needs.
Financial liabilities:You should aim to enter retirement life in a debt free state. If you have financial liabilities such as home loan, personal loan, etc., you should add these to the amount of coverage you need. For example, if you have home loan with Rs 20 lakh principal amount outstanding by the time you retire, you should add this to the coverage amount.
Future needs: You need to estimate the financial needs of your family, which may arise after your retirement. For example, it is possible that you may have to arrange funds for your child’s marriage or higher education. Many people are free of such responsibilities by the time they retire, but there’s also the group that has to bear such responsibilities after their retirement. For example, if your child’s higher education will require around Rs 30 lakh, you need to add this as well to the amount of life insurance coverage you need.
Financial assets: You need to make a rough estimate of the financial assets you will have at the time of retirement. These will include things like bank deposits, mutual funds, shares, etc. The total of these can be deducted from the amount of life insurance coverage you need. If we consider the examples in above paragraphs, the total coverage works out to be Rs 1.5 crore (1 crore + 20 lakh + 30 lakh). From this, you can deduct the value of financial assets you will have at the time of retirement. For example, if you will have assets worth Rs 40 lakh by the time you retire, your final life insurance coverage amount will be Rs 1.10 crore (Rs 1.5 crore minus Rs 40 lakh).
Age: The earlier you opt for life insurance, the better it will be for securing your financial future. Your premiums will be relatively less and you can easily afford a higher life insurance cover.You will also be able to opt for the maximum tenure possible if you start at a young age.
Life insurance is an effective tool to protect your loved ones from life’s uncertainties. It also provides a safe and reliable way to make your retirement life financial worry-free. With financialindependence, retirement can be fun and one of the most enjoyable times of your life. For best results, make sure you choose the right life insurance plan. The terms and conditions should be easy to understand and advantageous for policy holders.