Here’s how you can calculate the amount of insurance you would need in the future

Here’s how you can calculate the amount of insurance you would need in the future

You need insurance when you cannot afford to recoup from a prospective financial loss using your savings or other personal financial resources. Your insurance needs should be assessed as to your fund’s increase and your life changes.

Life insurance is something you purchase to safeguard your lifestyle or quality of life in the event of an unanticipated event to avoid excessive hardship.

You pay a fee to an insurance company for anything you wish to insure, and if something goes wrong, they will financially compensate you.

Life insurance calculator

The life insurance calculator calculates how much life insurance coverage you’ll need based on your current assets and obligations. If you need assistance figuring your assets and debts, there are extra calculators after this post to assist you.

Before obtaining life insurance, determine how much money your family would require if you die unexpectedly. Estimating the amount of life insurance you’ll need; might assist you to avoid buying too little or too much. To assess your life insurance needs and select the best coverage for you, follow these steps.

1. Calculate Your Immediate Obligations

The first step in estimating your life insurance policy requirements is to tally up all the expenditures that must be covered immediately following your death. Funeral bills, estate taxes, and school debts are all examples of this.

For example, while estimating his life insurance needs, John adds up his medical expenditures, projected burial costs, outstanding house payments, and school loan debt. He owes Rs. 4,45,000 in medical expenses, expects his burial to cost Rs. 6,30,000 (based on the average cost of funerals in 2016), owes Rs. 89,01,300 on his house, and has a Rs. 22,25,300 student loan amount.

Rs. 4,45,000 + Rs. 6,30,000 + Rs. 89,01,300 + Rs. 22,25,300 = Rs. 1,22,01,600

2. Calculate How Much Money Your Family Will Need

Following that, you must determine how much money your family will require to continue living as they do now, even after your death. You don’t want them to make significant lifestyle adjustments while they’re grieving, so this stage is critical. You may determine this by multiplying your entire yearly income (including Social Security) by the number of years you’ll need to supply it.

Add your existing savings and investments (excluding retirement funds), as well as your current retirement savings and the amount of any current life insurance policies, to this total (such as a work policy). If you plan to pay for your children’s college education, make sure to include enough money to cover each child’s tuition.

Example: John earns Rs. 59,34,200 per year and thinks he will need to support his family for the next 12 years (until his kids go to college). His current savings and assets total Rs. 18,54,400 and he has a Rs. 7,41,780 retirement fund. His employer provides him with a term life insurance policy that pays out Rs. 74,17,800 in the event of his death. He has two children aged six and eight, and he intends for each of them to attend a public institution for around Rs. 18,54,400 per year (based on the average yearly cost of attending a public university in 2016).

(Rs. 59,34,200 x 12) – Rs. 18,54,400 – Rs. 7,41,780 – Rs. 74,17,800 + (Rs. 18,54,400 x 8) = Rs. 10,25,000

3. Consider Your Spouse’s Income

If your spouse continues to work after your death, you can deduct their earnings from the total amount of life insurance you believe you’ll require. Remember to remove the expected yearly income tax from their monthly salary.

4. Total Coverage Estimate

You’re now ready to calculate your total. Remove your total from step one from your total from step two, then subtract your total from step three.

Alternate Methods of Calculating Life Insurance

The guidance above is one of the more detailed techniques for calculating your life insurance needs. Here are a few more methods for calculating how much life insurance coverage you’ll require:

  • Multiply your income by 10
    Multiplying your income by ten is a straightforward approach to estimate your life insurance This technique is a little out of date and does not consider your family’s requirements or money, but it can help you generate a quick estimate.

Sushma, for example, earns Rs. 74,12,200 each year. Rs. 74,12,200 multiplied by ten equals Rs. 7,41,22,000. Sushma will require a Rs. 7,41,22,000 life insurance policy.

  • Your income times 10 plus college expenses 
    Another fast approach to determining your insurance requirements is to double your income by Rs. 7,41,220 for college expenditures per child.

Sushma, for example, earns Rs. 74,12,200 each year. Rs. 74,12,200 multiplied by ten equals Rs. 7,41,22,000. Sushma is the mother of three children. Rs. 74,12,200 multiplied by three is Rs. 2,22,36,600. Sushma will require a Rs. 9,63,58,600 life insurance policy.

Tips for life insurance calculations

Keep the following guidelines in mind when you determine your coverage requirements:

  • Consider purchasing life insurance as part of an overall financial strategy. This plan should include future expenses, such as education costs, as well as the increase of your income or assets. Once you have that knowledge, you can map the life insurance requirement on top of the plan.
  • Don’t cut corners. Purchase somewhat more coverage than you think you’ll need rather than purchasing less. Remember that your income will most certainly grow over time, as will your costs. While you can’t predict how much each of these will rise, having a cushion ensures that your spouse and children may continue to live their lives.
  • Discuss the numbers with your partner. How much money does your spouse believe the family would require to survive without you? Do your projections make sense to them? For instance, does your family need to replace your whole income or only a piece of it?
  • Consider purchasing numerous, smaller life insurance plans rather than one bigger policy to adjust your coverage as your requirements change. This can lower total expenses while guaranteeing appropriate coverage at all times. You might, for example, get a 30-year term life insurance policy to protect your spouse until your retirement and a 20-year term policy to protect your children until they graduate from college. Compare life insurance rates to get an idea of how much it will cost you.
  • Parents with small children should pick 30-year terms over 20-year terms to allow them more time to accumulate money. A longer-term means you’re less likely to be taken off guard and have to look for coverage again when you’re older, and premiums are higher.

So, these were the measures that you can follow to calculate the power of compounding.


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