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Financial readiness: 4 factors to examine your life insurance coverage


Financial preparedness is the ability to navigate life’s needs, wants and uncertainties by critically evaluating income, budgeting, spending, ways to maximize and save that income, planning for emergencies, and for future retirement.

Why is it important to assess your financial preparedness?

Financial preparedness enables one to ensure that there are no speed bumps in one’s life goals. Assessing financial readiness is a critical pillar of personal finance, enabling individuals to embark on a risk-free journey. financial health throughout her life.

Four factors to examine your life insurance cover

The amount insurance coverage people will need variety depending on their individual circumstances. As a general rule, you need to plan for anywhere between 13 times and 20 times your annual income. In addition, there are several guidelines across factors to understand how much comprehensive coverage is needed:

Current income: This is the first step you can take when planning to buy life insurance. This allows a person to calculate how much they will need to maintain their current lifestyle while helping them understand their premium affordability.

Current costs: The next step is to look at the person’s current expenses across all aspects of life – living expenses, vacation and travel, medical expenses, and more.

Dependents and their financial goals: Life insurance is, in most cases, a financial security a blanket for dependents in the event of an unfortunate event, acting as an income or expenditure replacement, allowing them to pursue their goals. Therefore, it is important to assess the financial goals all dependents and estimate the life insurance coverage needed to achieve these goals.

Future financial expenses and liabilities: One can look at future expenses in terms of desired lifestyle, major asset purchases, major life events such as children’s education, etc.

How to choose the right life insurance plan for your needs

There are several key factors that will help one decide on the right insurance plan for their needs:

Type of insurance: There are many different types of insurance plans, so people need to choose the right type of plan that suits their needs. The first thing to consider is a protection plan, along with goal-based plans like a savings plan, an investment plan, etc. Several categories of guaranteed savings products are popular, as most of India still prefers capital preservation.

Policy benefits: It is essential to read the policy and understand the benefits and features carefully so that you know what is being offered. This can help people better align with their goals when purchasing a life insurance policy.

Premium: Insurance premiums can vary depending on the type of policy and the person’s age and health. It is best to invest in a life insurance policy at a young age to take advantage of lower premiums.

Tips for increasing your financial preparedness

  • Start early
  • Have a framework and a journey towards the lifestyle goal
  • Review your finances regularly. Make sure your plan is still on track and adjust as needed
  • Spend enough time to fully understand and consider your needs, wants and insecurities
  • Have a fund for emergencies
  • Above all, invest in your mental and physical well-being

Nitin Mehta, Chief Customer Officer and Head – Marketing, Digital and Online Sales, Bharti AXA Life Insurance

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Updated: 09 November 2023, 04:07 PM IST

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