Is your Life Insurance Cover big Enough? 3

Calculate your Proper Insurance need

Calculate your Proper Life Insurance Needs

To find out how much life insurance cover do you need is a very important and mandatory job for you. An inadequate life insurance cover may hamper your loved ones daily life in absence of you. The insurance cover should be big enough to take care of your family members till your dependents become self-sufficient if something happen to you. However, if you have no dependents then there is no need for you to buy a life insurance.

In the developed countries, most of the people are well aware on the needs of life insurance but there is lack of concerns in the developing countries. As per the statistics it has found that, in the developing world, most of the insurance buyers are approached by the sellers, there are very few who take initiatives by themselves.

Another very important problem in the life-insurance matter is that most of the people do not know how much life-insurance cover they need to support their dependents. Calculation of proper amount of insurance coverage is very important. Let’s find out how much life-insurance coverage you need to protect your family needs?

Calculate your proper Life-Insurance Needs

Suppose there are two persons whose monthly family expenses are same and others things are also same, except the debt part. One has large amount of debt but the other does not have any debt. Obviously the person having debt in hand will require more life insurance coverage than the other.
There is one simple formula for the people who do not have any debt in hand to calculate the need of insurance:-

Insurance Coverage= 15 times of gross annual income where insured person’s age<40 years
= 10 times of gross annual income where insured person’s age> 40 years

The above formula is a very simple one and may not work for everyone. To calculate your proper life-insurance needs, follow the below approach:-

A. Calculate your monthly expenses:

First calculate your monthly household expenditure. Then convert it to the annual expenditure by multiplying this amount with 12.
Now calculate the years i.e. how much time your dependents need to become self-sufficient. Say, today your child is only 5 years and need 20 more years to become self-sufficient. Then these dependency years will be 20 years. Multiply this 20 with your annual gross expenditure to get your required Insurance amount to support the daily expenses of your family.


B. Calculate the outstanding Debts: Now calculate your total debts.

You may have home loan, car loan or any personal loan also. Calculate your total outstanding debts by summing up all your debts.


C. Calculate the special one-time future expenses:

Calculate the one time future expenses of your family, like- the higher education of children . This may be $40,000 at present cost.

D. Calculate the whole amount of your Existing assets:

– Find out your total existing assets amount.

E. Calculate Final Insurance coverage amount:

Calculate your Final insurance coverage amount by subtracting the total assets from the summation of all your daily expenses, debts and future one- time expenses.


Now, you are ready with the final insurance coverage. Contact any expert to find out the best life-insurance for you depending on the costs, time and tax-benefits. You can check the different websites where insurance comparison system is available.

Another important point to keep in mind that this insurance needs may change from time to time. Once you’ve calculated your life-insurance coverage, don’t stick on it. You may require to change (addition is more important) it depending on the situation.
You may need more insurance on the below mentioned situation:-

1. After marriage:

If you don’t have any dependents before getting married then you need no life insurance coverage before marriage. But if you live in a joint family where your parents and siblings are financially dependent on you then you need life insurance coverage before marriage also and this picture is very common in the developing nations.

In both the situation, you need to calculate or recalculate your Life insurance coverage after marriage even if your spouse is working.
Your spouse may depend on financial support from you, so buy an insurance policy for yourself.

2. You become a parent:

Your responsibilities shoot up after the birth of a child. Take an insurance cover to protect the future of your little one.

3. When your parents become retire:

Take additional insurance cover when your parents retire or become financial dependent on you for any reasons or their income decreases. This scenario is very common in developing countries.

4. You take a Large loan:

If you take a large amount of home loan or any type of large amount loan then take a cover equal to the loan amount. Because your family may not be in position to pay the EMIs if something happens to you.

5. You start a business:

If you quit your job and start a business, you need a bigger cover because you may lose many of the benefits that employees get in the organized sectors.

Calculate your own Life insurance need today with our free Life Insurance Calculator Spreadsheet. It is very easy to calculate and then take a good insurance plan. In today’s world, it is not any choice anymore but it is compulsory duty for every bread-winner of the family.

                      Click Here to download your Free  life insurance Calculator spreadsheet.

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About Moonmoon Biswas

Moonmoon Biswas is an Equity research analyst . She has more than 10 years of experience in this field. She has proven track record in the field of Technical analysis and the Fundamental analysis. From the educational background, She is an MBA-Finance with CFA (India). She has work experience in the leading broking houses in India and has also in hand experience in Australian Security Market. She has her own equity research firm and currently also engaged in digital marketing.

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