Skip to main content

Insurance Sum Assured: Do you understand how much you need?

You buy life insurance policy for a reason. The reason is to get financial security, in monetary terms, for your dependants in case of your death. This money is what is called the Sum Assured. Fixing the correct amount of Sum Assured is a crucial activity at the time of getting a life insurance policy. Here is what you should know about it.

What is Sum Assured?

At the time of signing a life insurance contract, the insurer and the buyer agree upon a certain amount of money that will be payable upon the death of insured. This amount is the Sum Assured will go to the nominee or your beneficiary as per the policy.

Fixing the Sum Assured Amount

Sum Assured depends on numerous factors such as your total net assets, family's current and potential fixed annual income and expenditure, your age and the age of your dependents, and any loans or liabilities due. It should ideally be sufficient to see your dependents through till they are able to fend for themselves. Most financial planners suggest that the sum assured should be 5-10 times your annual income.

If you want a more precise calculation, you can calculate your human life value. You must have adequate insurance that comfortably provides for the financial resources your dependants need to live their lives if you are no longer around or are physically disabled. The sum total of all the obligations that you have towards your dependants is your human life value.

Sum Assured and Premium

Sum Assured is the reason why an insured pays premium. The relationship of Sum Assured with the premium depends on the type of insurance policy.

In traditional plans, including term policies, Sum Assured determines the premium. The Sum Assured is broken up into small amounts of premiums that a person pays monthly. In a term policy, one can typically pay about Rs 300 per Rs 1 lakh of coverage. So, if an insured wants Rs 50 lakhs of covered, they need to pay Rs 15,000 (50 x Rs 300).

In unit-linked plans (ULIP), because of market fluctuations, the premium determines sum assured. If you opt for a ULIP, based on your ability to pay the premium, the insurer will offer you a Sum Assured that will be a multiple of the premium. For example if your current financial standing allows you to pay Rs 5,000 annual premium on your ULIP, the insurance company will offer you a sum assured of say 5 to 20 times the premium amount. Your sum assured, in this case, could vary from Rs 25,000 to Rs 100,000. Within this range, you have to decide how much insurance cover you need, based on your requirements.

Riders on Sum Assured

Riders are special provisions in an insurance policy that can expand the benefits or the Sum Assured that is payable. For instance, if you have a rider for accidental death or disability, in addition to being eligible for the death benefit, your policy will also pay out an additional amount if your death is due to an accident, as defined in the rider. In case you don't die but an accident disables you, while the life policy might not compensate you, the rider will compensate you up to your pre-determined amount.

Revisit Your Sum Assured Regularly

It is wise to revisit your policy and review the Sum Assured, especially when there is a major change in your financial situation. Some of these changes are:

- Change in marital status - whether you get married or divorced
- Birth and death in the family that adds to or reduces the number of your financial dependents
- When you take a home loan to purchase a house
- A rise in your salary
- When your children are financially independent

 

-----------------------------------------------------------------

 

Also, know how to buy mutual funds online:

 

Invest in DSP BlackRock Mutual Funds Online

 

Invest in Reliance Mutual Funds Online

 

Invest in HDFC Mutual Funds Online

 

Invest in Sundaram Mutual Funds Online

 

Invest in Birla Sunlife Mutual Funds Online

 

Invest in IDFC Mutual Funds Online

 

Invest in UTI Mutual Funds Online

  

Invest in SBI Mutual Funds Online

 

Invest in L&T Mutual Funds Online

 

Invest in Edelweiss Mutual Funds Online

 

 

Popular posts from this blog

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...

Perpetual SIP - Its Advantages

Retail investors have taken a fancy to investing in mutual funds through systematic investment plans (SIPs). As per industry estimates, Rs 4,000 crore flows into SIPs every month. One way to take advantage of SIPs in a true long-term manner is to opt for a perpetual SIP 1. What is a perpetual SIP? In an SIP , you make periodic investments in a mutual fund scheme of your choice generally every month for a pre defined tenure. While signing up an SIP mandate , you have the option to leave the end-date column blank. If the column is blank, it means the investor has opted for a perpetual SIP . Most fund houses assume this SIP will continue till December 2099 unless you give a written communication to stop it. However, some fund houses require you to tick the `perpetual option'. 2. What are the advantages of perpetual SIPs? Registering an SIP involves a lot of paperwork and it takes time. It is observed that many investors skip their SIP instalments when they go for short-tenure option...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now