The basic and most important kind of insurance that anyone can buy is coverage in case of death of the bread winner because at some point in life, sorry for not sugar coating this, we are all going to die. We just don’t know when. Although we might all be praying for long and healthy lives–long and productive and joyous that we can still enjoy our grandchildren–not everyone can reach a ripe old age because of so many reasons.
To summarily say it, buying a life insurance policy is a way to show your beneficiaries that when it is time for you leave them permanently, you will not leave them buried with financial trouble due to your death or absence.
If you are the head and bread winner of the family, it is not enough to just buy any amount of insurance. You do not have to buy too much that you live in financial constraint in the present just to fill up the purse for future needs when you are no longer with your family. But neither should you be lax with your insurance that the face amount will only last them for a short time.
So, how much insurance coverage is enough then?
Experts says that it should be that at any given time, when your beneficiaries claim the lump sum and they decide to put it in the bank, the interest alone is equivalent to the financial support that you currently give them. Before your brain experiences a short circuit with the figures involved, let’s picture this out together.
So if you are currently supplying P20,000 per month for your family’s needs, the interest alone from the savings or time deposit of the lump sum face amount should also amount to P20,000 per month. This means that your family will not be crippled financially when you are no longer there to provide for them.
Yes, you read it right. They are not supposed to spend the money that they claimed because no matter how big it is, they will use it up after a certain time because that is stagnant money. But rather they are to invest it so that it will generate an income that will supply their daily needs.
And since the value of money depreciates and your income also increases over time in terms of amount, you should also upgrade on your insurance coverage as much as you can. You do this by topping up your premiums or buying another policy.
Ask your insurance agent how you can upgrade your plans to cover inflation rates and price increases in the future. You may be earning a bit more now so you might as well stash some of them for the future.