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 Posted: Fri Oct 10, 2008 4:09 am Post subject: Measuring Life insurance needs.. |
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Could anyone help measure the worth of life insurance that I'd need? What could be the ideal deciding factors?
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Caromel_merquez
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| Posted: Fri Oct 10, 2008 6:17 am Post subject: |
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Hi Caromel
There is no 'rule of thumb' in measuring the worth of life insurance that you need. It depends on how you are positioned financially and whether you have dependents. If you have dependents, you must have life insurance worth as much that would be enough to replace the income that you now generate for them. You must consider all kinds of possibilities before purchasing life insurance. Your family might need to relocate in future, may need financial help for higher education and so on. You must purchase enough insurance so that they are financially secure when you cannot anymore provide for them. Any hidden income (income that comes from your employer but is not a part of your gross salary) that you may have now must also be replaced.
Hope I've been able to help  |
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sil
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| Posted: Fri Oct 10, 2008 9:24 am Post subject: |
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Sil has got it right, there is no ‘rule of thumb' that can tell you the worth of coverage that you need. However, some people try to apply the following formula & it works as far I know.
Multiply the income that you may generate with the number of years for which you'll work. It'll give you an idea of the financial loss that the family may lose at the event of your untimely death.
However, while computing keep the inflation factor in mind and also don't forget to add unexpected expenses to the final amount.
Hope it helps. |
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JeremyHolter
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| Posted: Fri Oct 10, 2008 9:43 am Post subject: |
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| Quote: | | Any hidden income (income that comes from your employer but is not a part of your gross salary) that you may have now must also be replaced. |
Well, deciding about the amount of insurance is not a cake-walk for many of us. Financial advisers would often ask you to multiply your yearly income either with seven or eight). Some people are of the opinion, that the worth of insurance should just be sufficient to cover your income from now on till you retire. Again, some would suggest you feed your current debts. So, basically its all about a combination of all these factors at once.
Thanks, Fatman |
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fatman
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| Posted: Fri Oct 10, 2008 9:44 am Post subject: |
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Gee thanks Jeremy while multiplying the income generated with the number of years one may work might give you a fair idea of how much insurance you might need to buy, it might also end in overestimating or underestimating the coverage you need to buy. As a result you may end up buying too much or too little. There are individual needs and obligations you may need to consider before you purchase life insurance.
A classic formula can be adding up short term needs and long-term needs + family maintenance expenses and then subtract the resources (savings, stocks, social security, mutual funds, existing life insurance etc.) that you have, from your total expenses to figure out the amount of life insurance that you may need.
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sil
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| Posted: Fri Oct 10, 2008 11:35 am Post subject: |
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Hi!
Know the worth of your human life value. You'll arrive at the income since your current age till you retire supposing a consistent salary increment for the period. But in doing so the needs of the beneficiary are usually overlooked. You could end up buying more in terms of life insurance, perhaps even more than you might need. Roddick |
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roddick
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| Posted: Fri Oct 10, 2008 1:15 pm Post subject: |
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| Quote: | Could anyone help measure the worth of life insurance that I'd need? What could be the ideal deciding factors?
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You really didn't give us much information to work with here, but I will say that I have been in the insurance business for over 20 years and I have never experienced a situation where someone died and had too much life insurance.
Are you married or single? A single person may or may not need as much life insurance as a person with a family.
If you are married, one of your first concerns would be to allow your family to maintain the same standard of living as the one you have been providing. In order to do this, you might consider an amount of life insurance needed to retire the mortgage, pay off the car loans, other secured loans, and credit card debt.
Your next concern would be providing sufficient income for your family.
Some say that 70% of your existing income is sufficient, but I'm not quite sure that I agree with that estimation. You must decide how long you would like to provide this income for your family - 5 years, 10 years, life.
You should consider some type of emergency fund for your family because things are always breaking down and we all experience emergency situations in our daily lives.
IF you have children, do you feel that they should have the opportunity to go to college if they so desire? If this is important to you, you should consider some type of educational fund in your life insurance program.
If you have a family member with special needs, this would also be a consideration.
If your wife isn't working now, do you think that she would want to enter the workforce upon your premature death? If so, will she need education or training? Will she need a new wordrode to go to work? Will daycare be required for your children? All of these things cost a lot of money, where will she get it?
Don't worry about buying "too much" life insurance, just make sure you have enough to carry out your own personal goals.
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InsuranceMaze
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| Posted: Fri Oct 10, 2008 7:47 pm Post subject: |
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When I sell Life Insurance I try to make it as easy as possilbe. I truely believe that it must be with in your budget or it will be cancelled then making it useless.
There are three factors that I concider when speaking to clients.
1.Do you have children?
2. Do you have a mortgage?
3. Do you have any debts?
You should think, if you were no longer around, what would your family or loved ones need to sustain the life style that they presently enjoy.
There is another way of looking at it which is 10-12 times your annual income. This is a very quick and easy way of figuring out however, I have found that this amount is usually out of peoples budget so I bring it down.
I believe that over insuring someone is just as bad as under insuring them. Keep the fact that one dollar today will not be worth the same in 30 years when you pass and that insurance is something that you should get when you are young, healthy and keep for as long as you can.
Michael
FindYourPolicy.com
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| Posted: Sun Oct 12, 2008 4:07 pm Post subject: |
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You did not state if you are single or married. But if you are married, you should take into consideration the income that you put in to your family. I may suggest this one. Current income multiply it by twelve, that would give you your yearly income. Given the money is invested at an interest of 10% per year. You can compute your total coverage as yearly income divided by 10%. That could be your total coverage. The result on this one is quite a huge amount.
Here is an example:
Yearly: $12,000
Estimated interest rate on investment: 10%
Computation of your total life coverage: 12,000/.10 = 120,000
(all figures are just an example)
So that if the insured died he or she can leave 120,000 to the family. And when the money is invested at a rate of 10%, that can given them a steady income of 12000 per year. This can substitute the income lost by the insured.
This is a simple approach in determining your coverage. But of course there are other things that need to be considered such as inflation.
But if you don't have enough money to buy such coverage. Start small, it is better to be insured of a little amount than not being insured at all.
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joven222
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| Posted: Mon Oct 13, 2008 1:48 am Post subject: |
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| Joven, thats some good explanation.. Here I thought having a couple hundred grand and insurance on all teh loans so they were paid off if something happened was enough. |
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fireyone
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| Posted: Mon Oct 13, 2008 3:28 pm Post subject: |
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Go to the Life Insurance Guide section and check out, How much life insurance do I need?
I hope it helps,
Mark
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InsInvestigator
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| Posted: Tue Oct 14, 2008 6:43 pm Post subject: |
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| ThanksInvestigator...I will do that. |
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fireyone
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| Posted: Thu Oct 23, 2008 8:52 pm Post subject: |
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You can use an online life insurance needs calculator to find out how much life insurance may be right for you.
The needs calculator will ask you some financial questions and provide an accurate estimate of your life insurance needs based on the information you input into th calculator. |
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Hadley
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