How much life insurance do I need?

After you have finally decided to go for an insurance policy, the question now arises as to how much cover you need for in your insurance benefits. This is a challenging and daunting area for most people especially those who have had no prior experience with insurance; that also explains the reason why a good understanding of the features of the efinancial Life assurance policy is needed. There are many insurance companies, brokers and lots of different policies out there – you can insure just about anything these days so have a read and familiarise yourself with whats out there.

There are some questions which insurance professionals would advise you ask yourself before you consider going for a life insurance, these are:

a. What exactly are your foreseeable needs in some years’ time?
b. What standard of living do you want your family to live after you are dead?
c. What is your current financial worth and how much do you hope to be worth say in like 10 years’ time?
d. How much would your children’s college tuition cost when they are due?
e. Is your spouse working and would you still want her to work when you die?
f. Lastly, what would be the financial impact of your demise on your left behind loved ones?

Answering all these questions, would enable you to know what you actually need, if you go and apply for too much cover at too unnecessarily high a premium, you might end up not being able to continue the policy ending up as a loss to you. Well, it is advisable to seek expert advice from finance experts or insurance agents or advisers who can help you determine what specifically, you actually need.

Most insurance companies use a life insurance calculator and this calculator would have a particular method of calculating your life insurance needs. For the purpose of this article, I will explain a typical method which was extracted from two different insurance companies on how they use their life Insurance calculator to determine what you need.

a. some input factors would be entered into the life insurance calculator and this variables include:
i. A lump sum of money such that your family could still go on with the standard of living you currently live and this is most times like 8-9 times your current income or 10 at times;If you currently earn for instance $10000 per annum, you could consider the part you spend on living expenses for your family upkeep which could be say, $5000 per annum, it is this amount which you can multiply by 10 to determine the lump sum amount your family might need to survive and keep up with your current level of living.
ii. Your children’s college fees in like 10 years’ time:
Since you are the one paying for your children’s fees presently, therefore you only would be able to give a reliable and near accurate estimate of what your children’s tuition fees would be say in like 10 years’ time. It is this amount that is included in the life insurance calculator.
iii. The existing life cover you presently are in:Are you presently under any life insurance cover? If yes, then all you need do is to deduct this amount from the total amount of money needed since this cover would already be in place to cover up some of your family’s needs then.
iv. If you die, the likely funeral cost
v. Your outstanding debts or mortgages: Remember to consider this before you decide on how much policy you buy or you would be making a big pitfall of building up a castle and then having to use a bulldozer reduce it back to ground level yourself! The benefits you expect to be paid out on your death would have been used to pay your left behind mortgages or loans which at the end would jeopardize the essence of the insurance policy, therefore it is best to go for a policy that would pay out your outstanding debts or mortgagesafter your demise.

If the answers to the above variables input into the calculator are the following- i. $80000 ii. $15000 iii. $25000 iv. $1500 v. $5000
Then the amount of insurance you need would be around $77000.
The above is just an example to illustrate how the final figure is arrived at.