Needs and Necessities of Life Insurance

In the absence of crystal balls & premonitions, establishing the amount of life insurance needs is not an easy task. Insurance brokers and financial planners quote strange formulas for instance “10 or 20 times your annual income” that might not be helpful. But there are elements which you can feature into your decision making which decreases the presumption and unfocused estimation.

The basic point behind life insurance is securing the monetary future of your dependents after your demise – & no doubt you would like to leave them as comfortable as possible, so that they may maintain the standard of living they are used to. Therefore first off all, you require to take into account of your own conditions: the number of dependents you are responsible for like your wife, kids, possibly parents & other relatives. You require to think about your present & future earning potential, your age, your physical conditions, & the habits (like smoking) and activities (like extreme sports) you pursue that might affect your lifespan in future.

After that, there are a series of short and long term needs that might be not a match with your resources. An instantaneous thought for your dependents may be hospital expenses or might be funeral expenses, executor or legal fees. Then after this there are taxes, like estate taxes & other exceptional amounts billed to the receiver for revenue.

Your dependents might be left to service the bond on your home (most of the banks create a covering insurance a clause of granting a mortgage), private loans, vehicle finance, credit card debts and installments obligations.

You will have to think of the future needs of your heirs –are they at school? Are they probably to move on to tertiary educational institutions? Do any need specialized medical care? Will they require ‘rainy day’ funds? What are your spouse’s potential earnings? Inflation, too, is a key in establishing an amount of earnings your dependents will want in the future & must be applied to the known expenses of running your home & family.

These expenses should be viewed against any liquid possessions you have that will be ceded to your dependents on your demise – savings, shares, investments & policies.

An excellent piece of recommendation is to carry out this ‘needs analyses after every couple of years, to make sure your calculations are as precise as possible. Buying a more expensive property, welcoming a new born into the home, sending a kid off to university, are electrifying life changes that also have an effect on your pocket.

Another is to carefully examine and compare the life insurance schemes available to you so that you end up with the best fit. Some policies incorporate investment components which require careful evaluation. The guidance of a well-experienced, independent financial planner is often priceless in the process.

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