The amount that can be considered as an adequate insurance will differ for each individual but the guiding principles are pretty much the same for all. As discussed above, the key reasons for why one should consider Term Insurance are:
- to provide financial support and a means to replace lost income for your dependents and family in the event of your death, especially if you are the primary earner for the family.
- to ensure that your liabilities, if any, are met without imposing an additional financial burden on your dependents.
- to provide for key events and requirements of your loved ones like a Child’s marriage or education.
The adequacy of your life insurance cover should be a derivation of which of the above needs are you trying to provide for and what are the associated amounts that will be appropriate for each such need.
While some may recommend the use of ‘rules of thumb’ such as 10-15 times of your annual income being the insurance cover that you should consider, such rules may not be suitable under all circumstances and should be used with care. The best way to determine your insurance needs to determine the financial requirements of your dependents for each of the above mentioned needs.
Needless to say, the risk cover that you need will be reduced to the extent of any savings / assets that you may already have to offset some of the liabilities you are trying to provide for.