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.
Figure out operating expenses like childcare, food, clothing, utilities, recreation, and transportation for the yearly needs and times that by how long you want your insurance to cover these expenses, then add those totals together.
Resources: You\’ve completed the most painful part of the process – determining your income needs. Now you can start looking and the resources you have to meet those needs. Take into consideration all your available savings, investments, death benefits through insurance you may have through your employer and any government assistance your family will qualify for.
Selling any assets would greatly change your lifestyle and the list should look at liquid assets, not home or cars.
The bottom line: Take the income necessary to meet your family\’s full financial obligations and subtract from it your concrete resources to obtain a guideline for the amount of life insurance cover you will need.
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
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