Our financial needs are ever-changing - a new home or vehicle, children’s education, retirement, health, medical and other expenses and the life insurance cover we choose must fulfill our future financial needs at every stage of our lives. The main purpose of a term life cover is to replace the main breadwinner’s income, in case of their untimely demise. Young Indians, in particular, underestimate their future earning potential leading to underinsurance in a vast majority of cases. For instance, many believe that Rs. 1 crore cover is enough to support their families in case of an unforeseen event, where they may actually need more. So how does one arrive at that ideal number that can protect one’s family on life’s journey? Gunjan Ghai, Head of Insurance at PhonePe, says it’s easy and involves a simple calculation:-

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1. Add future earnings or the amount of money dependents will need to live a comfortable life. Include future expenses towards a house, car, higher education for children and so on. Don’t forget to take inflation into account when calculating future costs.

2. Subtract the family’s current savings

 3. The remainder is the amount of insurance cover a person should buy

Once a person arrives at the right amount of cover he/she needs, the next step is to review the cover regularly. As time goes by, people’s needs change and they will likely have more savings through investments and other means. They may no longer need to pay college fees or mortgage bills, which means that their life insurance cover will need to be adjusted as their life goals change.

One way to manage this is to break the life cover into multiple policies. As the coverage requirement goes down with age, the person can terminate policies to match their current requirements.

In summary, as people grow older, their priorities change with every passing year. A robust life insurance cover that keeps up with their changing needs is crucial to keeping their families financially secure in the future.