How much life insurance coverage do you need?

When getting a life insurance plan, your financial adviser will usually ask you up to how much you will want your insurance policy to amount to? If this question confuses you, you are not alone. Many people also do not understand what this means right off the bat.

The real meaning of this question would be “How much insurance would you and your family need?” your insurance agent or financial adviser will need to know this information because they will compute how much your premium payments will be depending on this total amount that you come up with.

How do you compute for the right amount?

As a general rule, your insurance amount should equate to 10 to 12 times your monthly income. However, generally, you should consider your overall situation before deciding on the final amount. There are two major considerations that you need to think about to come up with an accurate computation of how much you would need.

The two major considerations you will use in your computation would be your resources and financial obligations. Think about all the resources you have and make a total after that make a sum for your financial obligations. Then subtract the financial obligations from the resources. The answer you will arrive at would be the recommended minimum amount that should be your death benefit.

Resources. These would be your income plus the liquid assets that you own.

Financial obligations. In turn, these obligations would be any expenses you have for your family. These would be the monthly bills that need to be paid, as well as any debt you have. You need to be careful and list down every expense so that your computation will be accurate. 

Breakdown of financial obligations

It would be very easy to miss just one expense and then the whole computation would be wrong. These are the most common obligations for a small family would be:

Debt. This is one of the most important financial obligations to consider. If you die with unpaid debt, the responsibility of paying that debt may fall to your family. This could be your spouse who signed the car loan as your co-signer.

Note that nobody can hold your family financially responsible for any loan they did not co-sign. However, if you do have outstanding debt when you die, creditors may take away certain assets in the collection of payment for your debt, and this can still affect your family.

Dependents. Think about the children that you will leave behind after you die. Do you have enough savings to send them to college? Will you have some money you can give to them as an inheritance? You can account for all of these and incorporate them into your computation.

Financial buffer. Take note of your savings account. Would that amount be enough for your family to buy everyday needs – expenses for food, also, would they be able to pay for any emergencies that arise? Add this to your computation under your financial obligations as well.

Expenses at the end of your life. The expense of a decent funeral in the Philippines is expensive. Ironically, death could be so expensive. Even if you choose to be cremated, it would still require money. You would want to make sure that your family will not be burdened financially for your end-of-life expenses. Let your life insurance package take care of that so your family won’t have to.

After figuring out all the particulars that fall under resources and obligations, you will be able to come up with an accurate amount for your life insurance. It might seem like an overwhelming amount, but keep in mind that the general rule says you need to get 10 to 12 times your salary amount. T

his formula will never fail, follow it and you and your family will be all set to face the future because you will have peace of mind thanks to your life insurance policy.