- What are your dependents circumstances?
- What is your dream for your dependents’ future lifestyle?
- What are your current assets and liabilities? How would they fare in the future?
- What is your income replacement value?
- What are your future obligations?
As you grow older and as responsibilities start looking you straight in your face, with life travelling at the speed of thought and you in the driver’s seat, the most common question that raises its head over and over again would invariably start with ‘How much life insurance’. The requirement of insurance to suit your personal situations is always a mystery that keeps you thinking. And it is even trickier to be able to calculate insurance Premium and see if the Coverage would justify the premium involved. So, how much life insurance would be good enough for you and for your family?
The answer to that question cannot be a standardized version that suits everyone. The reason is that everyone is unique in more ways than one, and the requirement of insurance would be based on a number of factors that would pertain to individual needs and circumstances – personal and financial.
Insurance and dependents:
One of the primary considerations that you should have when deciding on how much life insurance you would need would be your dependents. Do you have dependents? How old are they and how are they placed? How would they impact on your requirement for insurance? When you calculate insurance premium and weigh it against the pros and cons, think about your dependents.
Insurance and plans for future lifestyles of dependents:
How much life insurance you need is a direct derivative of what your future would be and how you would want the future of your dependents to be. Do you have kids who are bound for college? Is your spouse working or capable of securing an employment? Would you want your spouse to work to manage your family? What kind of lifestyle would you envision for your dependents in future? You would calculate insurance premium based on the amount of coverage that you would need, considering the responses to the questions asked.Insurance and Assets / Liabilities:
Not everyone would need the same amount of insurance and not everyone would compulsorily need insurance either. How much life insurance you need essentially depends on what your current status is with regard to your assets and liabilities. If you have massive assets and few liabilities, you would stand a good chance of seeing through all your financial needs well into the future, provided your assets are capable of appreciating in value and you do not have any new liabilities in the pipeline. Your requirement of insurance has to be a balance of the two. Income replacement:
When you calculate insurance premium, you need to see what your income is and what your dependents or family’s income would be in your absence. Whatever your income may be per year, you may want to see how it would fare a few years down the line, considering the effects of Inflation
and declining purchasing power. Your requirement of insurance would be a function of your income and the projected value of your income in future. Future obligations:
You may not be able to see how much life insurance
you need to the exact precision, unless you knew what your future obligations would be, which, in turn, depends on all of the factors mentioned above. When you calculate insurance premium, you would want to ensure the safety and financial security of your family well into the future. How much life insurance you need depends on all of these factors that dictate your requirement for insurance.