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How to Choose a Life Insurance Plan based on Your Income?

  8/5/23 9:27 AM

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Life insurance is crucial as it helps you secure your family’s future in your absence. But that is not all. New age life insurance like guaranteed returns plans in India also help you amass a large corpus over time with disciplined savings. A guaranteed return investment plan is one of the best financial tools when it comes to savings.

As the name says it all, you get guaranteed returns on maturity that help you beat inflation and cater to long term needs, such as retirement, higher education expenses of a child, home purchase, and more. A guaranteed return insurance plan also offers you a life cover, additional riders like critical illness benefit, and the option to take a loan from your plan, making such plans multipurpose instruments that can be used in any and every situation.

While these plans offer so many benefits, it is important to know how much to invest in them so that you are able to save enough to meet your requirements. Read on to know how you can choose a life insurance plan based on your income.

Finding a life insurance plan as per your income

Here are some steps you can take to select a suitable insurance cover amount:

Start with calculating your expenses: Calculating your current expenses will give you an idea of how much it would cost you or your family to maintain a similar lifestyle in the future. It would also let you determine how much premium you can comfortably pay towards a guaranteed return investment plan without hampering your current lifestyle.

Some common expenses that you should be looking at include rent, groceries, electricity, water, school or college fees of your children, medical expenses of your family members, etc. These expenses are recurrent and essential. Take a cumulative total of all of these heads and factor in inflation.

You can use an online inflation calculator or refer to past statistics of inflation to ascertain the rate of inflation in the future.

Yearly expenses + inflation = Sum required per year in the future

Take into account all your liabilities: Liabilities, such as outstanding personal loans, business debt, home loans, credit card bills, etc., can cause a considerable dent in the pocket. After you, the responsibility to settle these loans can come onto your family members like your spouse or children. Hence, when you calculate your expenses, you should also pay attention to your liabilities.

Take theseinto account along with the remaining tenure of the loan and accordingly select a suitable cover amount for your guaranteed return plan. Calculating your liabilities is particularly important if you are the sole earning member of your family. In such cases, it can be extremely hard for the surviving family members to clear pending loans. This can also lead to lengthy legal battles for them.

Count all your assets: Your assets, such as fixed deposits, real estate, equity investments etc., will help your family cover their needs in your absence. These would provide additional protection to them and help them pursue their dreams.

Make a list of all your assets and their monetary value in the future. This will give you an idea of how much extra coverage you need from an insurance guaranteed return plan. Also, think of all diverse scenarios.

For instance, if your creditors claim any of these assets, your family may not be left with enough. In this case, the payments from a life insurance plan can be their only hope. So, pick a cover accordingly.

Use the income multiplier method: Under this method, you need to take your annual income, deduct all expenses, and then multiply the remainder by the age group factor you fall into. Here’s how:

·         Age 30 to 40: Multiply your income by 15 to 20

·         Age 40 to 50: Multiply your income by 10 to 15

·         Age 50 to 60: Multiply your income by 5 to 10

So, if you are 35 years old and your net income per year after deducting all your expenses is ₹5,00,000, you will need a maximum cover of 5,00,000 x 15 = ₹75,00,000 or 5,00,000 x 20 = ₹10,000,000. This is a general rule that can help you determine your future needs and pick out a suitable cover amount for a guaranteed return insurance plan.

Multiply your income by 10 or 20: Another common method to determine the right coverage for your guaranteed return investment plan is to simply take your annual gross income and multiply it by 10 to 20.

So, for instance, if your annual gross income is ₹7,00,000, you will require a minimum cover of ₹7,00,000 x 10 = ₹7,000,000 and a maximum cover of ₹7,00,000 x 20 = ₹14,000,000. Such an amount can be sufficient to cover your family’s needs as well counter inflation in the future. 

What are some other things that you can consider while selecting a loan?

Apart from following the steps given above, it also helps to evaluate your financial goals. Guaranteed returns plans in India are a safe investment option and can be used for various goals like saving for a child’s higher education abroad, marriage, etc. So, if you are saving for such as goal, you should pick a cover that will be sufficient to meet these goals along with inflation and the added expenses of your loved ones. 

How can I pick the right plan for investment?

Look for plans that are flexible and offer riders to boost your coverage. Loan facilities, multiple premium payment methods, riders, etc., can also add to your overall protection. So, keep an eye out for such features along with affordable premiums,

Plans like the Edelweiss Tokio Life GCAP offer you the dual benefits of protection and assured returns. Protect your family’s future with the life cover and fulfil your dreams with the guaranteed returns on investments. The Edelweiss GCAP Plan helps you save money with tax benefits - a major advantage of investing in life insurance plans.

To sum it up

As important as it is to invest your money for your future needs, it is equally essential to invest your money wisely and in the right amounts. Guaranteed return plans can be a safe investment option, but make sure to follow the steps given above to pick an appropriate coverage. 


Siddhant Dubey -  Writer & Photographer

Siddhant works as a freelance content writer who is interested in a wide range of spheres from photography and personal finance to cooking. He is also an aspiring photographer striving to showcase life around him through his vision. 

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