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Current assets: To know about the life insurance cover you must know the current assets which will be available to the survivors to offset their financial needs in case of your death, the current assets include the total investments you have & the total cover of your existing life insurance policies.
You total investments include all your savings, stocks, bonds, retirement funds & other investments that can be sold & liquidated.
Family’s one time expenses: To protect your family from any kind of financial burden of paying your debts you must include your mortgage amount & other outstanding debts to spare your family from such financial obligations. The one time expenses are immediate expenses which will include funeral expenses & the amount owning on mortgage & other outstanding debts like auto loans, Personal loans & credit card payments etc.
Now a days funeral expenses (expenses at the time of death) are also expensive, apart from these expenses you need to include other expenses like uninsured medical costs, travel costs & any unanticipated expenses which are often higher than funeral expenses
Family’s annual expenses: You also need to know your family’s annual expenses i.e. how much your family spends annually if you passed away & that will include your children’s education expenses, your household expenses & other such expenses.
Annual income of survivors: It will include the income your spouse or any of your family members earns currently; if your spouse doesn’t work then you can estimate an expected annual salary of your spouse after your death.
Inflation rate: Recommended 4%, both income & expenses will grow at this rate
No of years to support family: Life insurance ensures that your family will have enough money to pay their day to day expenses but for a reasonable amount of time. You need to write the number of years your family will need this insurance income to support their financial requirements. The number of years recommended are 15-20 years.
Annual rate of return on invested amount: It includes an annual rate of return you are earning on your total investments.
Total lumpsum required at year 0: This is the total amount of investments required at year 0 to ensure a quality lifestyle of your family– assuming that’s the year of the demise of the insured. From this the already insured amount & other liquid assets (that can be sold) have to be subtracted to get to the amount of additional insurance required for optimal coverage. |
