Is Your Savings Plan Enough to Secure Your Future?
When everyone thought the world was going normal, we got hit by yet another wave – a new variant of Covid – and this time, as a much greater threat. Everything’s unprecedented at the moment, which is why every step of your carefulness and planning counts.
To tackle such unforeseen times, you may already have some saving plans in your portfolio, but is it enough for you? How are you supposed to know how much insurance you need to ensure the financial safety of your family in the event of any unfortunate instances?
Even a product as simple as life insurance can have a lot of underlying variables that determine how much insurance you need. Fortunately, the advent of online premium calculator tools has eliminated the need for manual efforts in this process.
That being said, whether you’re looking to purchase a savings policy or reconsider your existing one, it is extremely straightforward to determine how much coverage you need as per your lifestyle. Read on to find out how to do it on your own!
What is a life insurance premium calculator?
In simplest terms, a life insurance premium calculator is an interactive online tool that allows you to gain an estimate of your policy premiums. There are also life settlement calculators, that allow you to calculate the cash value of your life insurance policy if you were to sell it.
It doesn’t even take a minute to complete, and the estimation is displayed instantly on your screen after filling the form. This makes it a lot more convenient than the traditional method of considering a financial consultant.
What’s The Necessary Insurance Cover Amount as Per Your Lifestyle?
Before getting down to know how much cover the amount you need based on your lifestyle traits, get a pen-paper and take some time out to write down this basic fundamental equation:
Your Financial Obligations – Existing Assets = Your Required Cover
Breaking down individually, here’s what you may consider including in your ‘Financial Obligations’:
If your child aspires to study in a reputed university, you have to make sure that you plan early for it. This includes the tuition money that can be used by your children to pay for their college in case you’re no longer around to help them with their finances.
Debts or Mortgages
In case you have mortgaged a house, make sure to include its balance in financial obligations to ensure your family can continue living without any fear of losing the property. You can also think of other debts that can affect your family if you pass away unexpectedly.
To provide a consistent stream of income for your family and ensure their financial safeguard, you may include the salary for the number of years you’re looking to replace in your financial obligations. Make sure you consider your family’s monthly expenses.
Talking about the “Existing Assets,” here are some examples to help you get started:
In case you already have an existing source of savings that you or your family has accumulated and can be used to pay expenses, be sure to subtract that amount from your financial obligations. It can also include savings from employee provident funds or any retirement plan you’ve signed up for.
Any existing life insurance or money-back policy should also be considered in existing assets as they are your future financial cushions. However, don’t add group policy from your work as it may stop as soon as you leave your job.
Funeral or Burial Expenses
Although it may sound weird, a lot of people purchase insurance to be able to cover their funeral and burial expenses without putting any burden on their families. If this cost is a part of financial planning too, then make sure you subtract this as well.
How else can you know your required coverage?
There are certainly other methods that can be applied using a premium calculator to determine your required coverage. Some of them include:
Multiplying your income
Well, not precisely ten, but it can be anything that you pin down based on your requirements. There are many figures attached to it, which is why it’s not an appropriate way to assess your life insurance.
It’s better to look at your present needs and existing assets that your family can use in the event of your unfortunate demise, instead.
Use The D.I.M.E Method
To get a more precise value, you may consider using the DIME method that stands for debt, income, mortgage, and education. As the name suggests, it allows you to add up four different values to calculate your required coverage:
- Debt – Is there any existing debt that is likely to be left to other people after your demise? This may include debts like student loans or credit card debt that aren’t forgiven at death
- Income – Multiply your present income by the number of years you want to provide for your family after death. While a lot of people suggest keeping the number of years until your child turns 18, this is highly ineffective as children often require financial aid even past that age
- Mortgage – Add up any existing mortgages that you currently bear
- Education – If your children are planning or attending a college, make sure you add the amount to cover tuition, room, and board for each of your children
While the DIME method is a great way for beginners to estimate an adequate cover for themselves, it doesn’t consider any financial resources that you presently own, which might increase the risk of being over-insured.
The world is transitioning at a radically fast rate and we never know what the future holds for us. Therefore, it’s better to keep yourself and your family secured with an adequate savings plan tailored as per your lifestyle. So, go ahead and use the knowledge you gained to estimate an adequate insurance cover for yourself right away.