How much life insurance do you need?
It can be calculated in an excel sheet now. Use the two methods to calculate the figure.
Please be aware that there is a better method called Needs Analysis which is the best and most professional way to get to the magic figure.
When faced with the prospect of figuring out how much insurance to buy, most people pluck a figure out of the air–something that just seems adequate. Or another most common practice is to rely on insurance agents to decide a policy and sum assured. This is not the way to make this important decision.
The ideal way of making this decision is to unemotionally create a financial plan that your family should follow if you die suddenly. Here are some heads to consider.
Loans and debts: As far as possible, take debtors’ insurance so that your debts can be paid off straightaway. If you have a housing loan, the lender has probably made sure that you already have such insurance for that loan.
Other loans need to be considered. While you can add these to your main term insurance. Taking a policy where the insurance company will directly pay off lenders has the advantage that your survivors will not be tempted to carry the loans.
Do not waste money in insuring unsecured personal debt like that for credit card. The card issuer cannot
make your family pay so there’s no need to cover that. Unlike say, vehicle loans where you wouldn’t want the
family car to be possessed by the lender.
Future Expenses: The hardest part of providing for future expenses. Such as higher studies of children, daughter’s marriage, etc. is estimating and allowing for inflation. Take a reasonable, at least 7%, inflation rate into account.
