A formidable part of choosing a life insurance scheme depends on how much money your dependents will require. The amount that is bestowed on your benefactors ultimately boils down to a bunch of factors.

This article outlines the parameters that determine the minimum life insurance coverage so that you can avoid any mis-selling of the insurance policy.

So let’s take a close look at the most important parameters in choosing a minimum amount of life insurance.

Debt

Often, life insurance is used to pay off encumbering debts, such as student loans, car loans, mortgages, credit cards, and much more. Hence, to compensate for any of these debts, your policy should possess enough coverage to pay them in full. If you have a mortgage of two lakhs and a car loan of five lakhs, your policy should be able to cover at least seven lakhs. Some insurance agents might misguide you into settling for less coverage than what would be realistic. You should cautiously dodge any such snare of mis-sold insurance policies.

Income Replacement

One of the major purposes of life insurance is to receive a substitute income. Assuming you are the sole provider for your benefactors and you bring in two lakhs a year, your policy payout must be large enough to cover your annual income.

Life insurance experts usually advise a policy worth five lakhs to replace your income for the next decade or so, taking into account inflation and other aspects. You should not be led to think otherwise or settle for arrangements that do not cover your annual income as the latter too often harbor on the side of mis-selling of the insurance policy.

Insuring Others

You might opt for life insurance to insure others who are important to you. In these cases, you should only insure people whose death might incur financial loss, for instance, an income-earning spouse. Here too, instead of being manipulated by mis-sold insurance policies, you should follow the income replacement calculation considering your partner’s annual income.

There are also some rules of thumb to compute the amount of life insurance you need. These could be multiplying your current income by ten or considering the number of years left until retirement. However, in case of any hesitations or doubts, you should talk with the experts and find specialized guidance.