Customers, as well as employers, have a query about the amount that the relevant life policy can cover. These policies are tax saving and most of the high paid employees take less salary and more of dividends and bonuses, so the policy must provide cover on the additional components of remuneration too. The range of cover and multiples that the companies provide differ from one insurance provider to another. Let us first understand what is relevant life policy sums assured?
Sum assured and maturity value – The relevant life policy sums assured is the amount of money that an insurance policy will provide without adding any sort of bonuses. This is the guaranteed amount that will be given to the policyholder by the company. It is also known as coverage amount. Maturity value, on the other hand, is the amount the insurance company pays the individual when the policy matures. It will include sums assured plus the bonuses. If the person dies before the policy matures then his beneficiary will get the number of sums assured plus the bonus.
How to calculate the sums assured?
To decide the sum assured value while raising the insurance claim you must predict the expected cost of living of your family when you will not be around and also check your financial affordability.
- Add up the one-time expenses – Add one time expenses such as outstanding debts, personal loans, mortgages, home loans, education loans, credit card payments etc.
- Deduct the liabilities that come from assets – if your liabilities exceed your assets then your sum assured amount must be such that there are no sort of financial obligations that are left for your family after you.
- Annual family expenses – Add up the family expenses such as college/school fees, grocery bills, electricity bills and utility bills as well. Multiply it by 12 to get annual expenses.
- Consider the number of years insured – while buying a policy consider the number of years for which you want to protect your family financially. This can be considered based on the number of years it will take for your children to start earning after your death. This can be done based on assumption basis. Multiply your family expenses by the number of years for which you need insurance and add it to net liabilities in order to get the approx value of sum assured.