Financial readiness: 4 factors to examine your life insurance coverage
Financial readiness is the ability to navigate life's needs, wants, and uncertainties by critically evaluating one's income, budget, spending, avenues to maximise and save the said income, plan for emergencies, and for future retirement.
Financial readiness enables one to ensure there are no speed bumps in one's life goals. Assessing financial readiness stands as a critical pillar of personal finance, enabling individuals to embark on a journey towards risk-free financial health throughout their lifetime.
The amount of insurance coverage that people need will vary depending on their individual circumstances. As a general rule of thumb, one needs to plan for anywhere between 13 times to 20 times their annual income. In addition to this, there are some guidelines across factors to understand how much comprehensive coverage is required:
Current income: This is the first step one may start with when planning to buy life insurance. This allows one to calculate how much they will need to sustain their current lifestyle while also helping them understand what their premium-paying capacity would be.
Current expenses: The next step is to look at one's current expenses across all facets of life—living expenses, holidays and travels, medical expenses, and others.
Dependents and their financial goals: Life insurance, in most cases, is a financial security blanket for dependents in case of an unfortunate event, acting as income or expense replacement, allowing them to pursue their goals. Hence, it is important to assess the financial goals of each dependent and estimate the life insurance coverage required to meet these goals.
Future expenses and financial liabilities: One may look at future expenses from the perspective of desired
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