How much life insurance do I need? We give you some methods to calculate what face amount you should buy and why. My name is Andrea Edwards, an independent life insurance agent in Maryland, and I am here to help.
Life Insurance is not about putting value on your life. After all, your life is priceless. The key purpose of enrolling in a policy is to provide adequate financial resources for oyur loved ones, who can then provide for themselves, if you were to meet with an untimely death.
In this article we look at how you can correctly answer the question, how much term insurance do I need? calculate the correct life insurance coverage and what factors, you need to consider, while doing that.
To understand how to calculate your term insurance requirements. We'll take the example of auction, who like a lot of households is stretched with his finances and was untimely death would certainly put his family through many hardships, actually, is 35 years old, unless with his wife, his parents and his two children age seven and three years actually and his family spend about $2500 every month which is totally unavoidable.
A large portion of that amount is actually his mortgage of $1300 which he still has a little over 20 years until it is paid off. Let's look at the five steps, actually needs to take to calculate his term insurance coverage. Step one factor in what you spend every month on all dependents, their childcare, tuition, and/or activity fees.
It is generally recommended to provide coverage at 10 to 15 times the annual expenses or 10x to 15x the yearly salary of the insured (the person who is taking out the policy). When this is entirely Archie has called in his case, a multiple of 15 is suggested to account for higher inflation, on account of rising education costs for his children under health care costs for his parents at a multiple of 15 times options coverage on the basis of future household expenses needs to come to about 1.08 gross step to factor in the liabilities.
The most difficult situation, one can leave the family in is with a pile of debt, actually has an outstanding of 70 lakh rupees on his home loan, which has its primary burden that needs to get taken care of. Adding the 70 lakhs to the 1.08 corrodes takes actions life insurance coverage requirements for 1.7 incomes. Step three, action needs to factor in important life events and actually has two young children who have a number of milestones coming up with their education and the manager, actually wants the best for his children, has already set up a monthly si P of 7000 rupees. Create a corpus of 20 lakhs for the next 15 years to manage that higher status, his untimely death will put his goals in a limbo, and hence it is wise to add this amount to actions life insurance coverage requirements. This takes up actions life insurance requirements to 1.9 equals. Step four, factor in a retirement corpus for your spouse, so far, actually has been calculating his life insurance needs, on the basis of existential, and unavoidable daily expenses existing liabilities and future visible needs like a student's education. The last variable to consider here for action is to leave a purpose for his wife, which can grow with time so that she can manage her time up she reckons his wife needs at least 80 lakhs in her retirement. This additional 80 lakhs pushes up actions calculation of his ideal life insurance coverage to 2.78 corrodes now a useful tip here, as you would have noticed to calculate how much term insurance you need is a science, but it's certainly not an exact science because you're predicting into the future and making a few assumptions. Hence it is never a bad idea for you to be conservative in your estimates. So if you think your family can do with 50,000 rupees in monthly expenses, I suggest you nevertheless estimate, 60,000 rupees. and finally step five factor in additional variables like your age, and your, your age, and your current wealth, are also important determinants when calculating your term insurance requirement. Let's start with each options dimensions requirement was very high because he has debts, high monthly expenses and for dependents including young children who have their entire future ahead of them. But if you're in your 20s and not married, then your life insurance requirement is not that high. Similarly, if you're in your 50s with a decent investment portfolio. Your children are married and working, then to your life insurance requirement is not going to be too high. And don't forget to factor in your age. Another key factor is your existing wealth, we spoke about factoring liabilities like home loans, credit cards and other money you owe to others, while calculating life insurance coverage on the other side of your personal balance sheet, are the investments that you've made over the years, which can be accessed by your family, on account of your demise. These include your provident fund fixed deposits mutual funds, and even your real estate. Let's assume he has a mutual fund portfolio of 30 lakhs. This money is readily accessible to the family upon his demise, which means he can deduct this amount from his life insurance coverage requirements. So from 2.78 crores. His new life cover requirement is 2.48 crores now. The term insurance requirements exercise we just went through is not an exact science, but should have helped you understand your future priorities, and current standings with respect to offering financial stability to your family.
Now you can't predict everything, so it is always a good idea to evaluate your term insurance needs every five years to check if your responsibilities and your insurance is on the same track. If you liked this article share this it with your friends.