Calculating The Amount To Buy

By Author: Marcus Stalder
Total Articles: 491
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There's nothing wrong with just guessing how much insurance to buy. No one can know for certain what's going to happen over the next fifty years. In the good scenarios, we stay a great nation, our economy recovers and rules the world. In the bad scenario, we are into the End of Days before the Second Coming - hopefully the Last Judgment will be favorable. If you prefer something better than a quick guess, you are signing up for a slightly ghoulish exercise where you have to start putting numbers down on paper. This is not something everyone wants to think about. It's often better to avoid thinking about passing on and plan on a vague basis. But if you are strong minded, there are simple calculations you can do yourself or there are online calculators that can help with the analysis. How then should you approach this?

The first step is assessing your current financial position. How much do you earn, what assets do you own, do you have any cash in hand, what are your monthly costs, and what are your debts? Now you need a few minutes research. How much will it cost for the funeral? This can be quite surprising. Most people ...
... do not realize how expensive it can be. You also need to find out whether there will be any other costs and expenses incurred to reduce the amount left over, e.g. estate taxes. So you now have a picture of what would happen should you die overnight. Now look around at who would be left behind. This may be your parents or your partner and any children. With your income suddenly gone, what do they need to maintain a reasonable quality of life? In this we assume the first part of the insurance will pay off all you owe. The second part now provides a lump sum for the future welfare of your family. This is where it gets uncertain.

You might decide you need to set up a fund to pay your children's way through college. This would require quite a large capital amount, invested so it will be protected from the worst effects of inflation. Now let's change the assumption. This need disappears if you live a happy and healthy until after your children have completed their education and have jobs of their own. At this point in time, you would expect them to be achieving financial independence and, perhaps, making financial provision for looking after you as you grow old. Now here's the real test. Once the family has flown the nest, a more pressing need may be financing long-term nursing care as your health fails. So you need a policy with a cash element you can use as security for a loan or withdraw to help cover those costs during your lifetime.

As we said, this is a little ghoulish but until you think through all the issues, any amount you input to get life insurance quotes is unreliable. You may find it better to have someone experienced to help you through all the questions and their answers. Remember the problem of getting good quality independent advice. However you approach it, get a wide range of life insurance quotes to see what premium rates are available and affordable.