As a responsible person with a financial obligations and a family, you certainly realize your need for insurance. Your goal is to purchase the right amount of insurance. If you’re over insured, you’re paying too much. But that is not as dangerous as being underinsured.
There is a simple equation to assist in determining your life cover needs. Your total cover = needs in the short term + needs in the long term – resources. The steps now listed will serves a guide in analyzing your needs. Remember, however, this formula is only approximate, so think carefully when deciding on a policy purchase.
Short-term needs: Begin by adding up all your short-term needs. These are the immediate needs your family will have upon your death, and generally fall into three categories: final expenses, outstanding debt and emergency expenses.
Medical expenses a result of your fatality, funeral expenses, attorney and executor fees, probate court costs and any outstanding taxes you would be obligated are termed as final Expenses. usage of Credit cards, vehicle loans, and education loans are outstanding debts. Emergency expenses such as medical treatment and emergencies, house renovations and repair, etc are cash reserve. you will have to overvalue the final expense as none can judge absolute hidden and crisis expenses.
Long-term needs: By using mortgage/rent amount and college Fees you can now calculate your long term obligations.
Operating expenses: Next determine your family’s normally budgeted operating expenses. This will include necessities like childcare, groceries, clothing, utilities, entertainment, and transportation for one year. Multiply this figure by the number of years you want your insurance to cover these expenses. Add the totals of these three expense categories together.
After figuring out how much your family needs to earn, you can begin looking for those resources needed. Consider the sum of your available savings, investments, the insurance payout for death benefits if any is offered at work. Also, see if your family qualifies for any government assistance programs.
Selling any assets would greatly change your lifestyle and the list should look at liquid assets, not home or cars.
The bottom line: Now subtract your resources from the amount of income you will need to meet your family’s total financial needs. This figure is a good guide to the amount of life insurance cover you should buy.
U have to be insured adequately and this analysis should be taken every three years.Adding a new baby will cause you to readjust for childcare. Also college tuition expenses is very high.when you are paying this u should remember the payment because the balance decreases with every payment.
Tom Martens is the marketing director lifeinsurance-southafrica.co.za. South Arica’sleading Life Insurance portal