How do you know how much life insurance gives you security?
Life insurance is almost the only service you buy because you don’t want to use it. This is not about you, but about your loved ones. Thus, the extent required also depends on what they need or may need.
While one is in the daily squirrel wheel rarely thinks about what will happen later. Usually we need some bad news (news on TV at best, death of a loved one at worst) to think about what would have happened if it had just happened to us.
A completely obvious solution is to take out life insurance, the question is what is the amount that provides adequate protection.
The definition of this is not so exact.
As many people as you ask, “How much insurance do I need?”, There will be so many answers coming to you. They will respond according to their individual experiences and interests, so there will be a respondent whose response will be useful to you and will be one who does not. But then how do you decide how much to say realistically yes when it comes to life insurance?
The extent of this is best known to you, as well as to your spouse or, in the case of a business, your business partner. You know best your own situations, how you live now. Anything else can only be a guide.
The basic assumption when determining the extent of life insurance
A person basically takes out insurance so that if something goes wrong with him, neither he nor his loved ones will go bankrupt.
You could say that’s not the case, but I’ve seen a lot of people who considered insurance a waste of money until something went wrong in their immediate enviroment. After that, he was the first to want to tie because he found it cheaper to pay the fee than to gather the needed money alone.
Insurance can be expensive in two cases:
- If you do not have, but you would need desperately the amount of compensation
- When you have it, it’s just something tiny that doesn’t pay in case of trouble, but you pay the monthly fee diligently.
With a properly customized insurance, this is not very common.
Trouble can’t be calculated, I could write you a whole lexicon of horror stories, but I don’t think you need to go next door for that either. As they say, life is the best director.
Where does life insurance planning slide aside?
When it comes to insurance, people rarely think of themselves. After all, so far there have been at most minor diseases that have healed on their own.
If you spend more on insuring your car than you do on your own or your loved ones, you may wonder what is more important to you.
We have already seen an example of how life insurance taken out saved the client’s family from starvation. It is not age-related, unfortunately he was the one who left his family and child behind at a young age. Life insurance here made it possible for the loan to be repaid and for the parent raising the child alone not to go bankrupt due to the lost claim.
How much life insurance provides adequate protection?
When you ask an insurance person, most of the time you will find that it is okay to ask for 10 times your annual earnings for life insurance and 30 times for accident insurance.
I would add that it is okay to keep these minimum, don’t go below these multipliers.
You can see some differences in the numbers. The triple value is not a spelling mistake at the accident insurance. After all, then you may not have a chance to recover, for the rest of your life you need to make up for the income so that you can’t even work. So not only are you not earning, you are taking out the amount you need for your life from the family budget.
This way you can determine the amount that life insurance needs to reimburse.
Add up the following items to determine how much life insurance you need to keep your family safe:
+ Your income is at least for 5, but up to 10 years: this gives your loved ones a chance to get back on their feet and find a new source of income
+ Amount of your existing loans: take into account all loans here, this is not a divorce when half of it takes the leaving party.
+ Future goals that you would definitely like to see achieved: such as teaching your child. If you have so far assumed that you will pay the necessary amount from your wages at that time, then plan the amount of life insurance so that this goal can be achieved even in the event of a tragedy.
– Cover for existing life insurance policies
Multipliers determining the extent of life insurance as a function of age
If you do not want to shoot with penny accuracy and adjust the amount of your life insurance for each change in life situation, then the table below is the one that will show you the direction.
| AGE | ANNUAL INCOME MULTIPLIER |
|---|---|
| 25 | 25 |
| 35 | 20 |
| 45 | 15 |
| 55 | 10 |
The key: the older you are, the less coverage you need
This is because when you are young and you start living, you need huge capital to accomplish your basic goals (raising a child, owning a home, own other goals)
Over the years, most of these will be mostly behind you. A person 55 years of age or older may raise more than one small child under the age of 10, but this is not the common case. Thus, providing him with an existing level is what is primary.
Factors influencing the required level of life insurance
Borrowing
I have already mentioned borrowing above. Although currently banks don’t ask for credit life insurance, if you do, you’re doubly good with it. Many banks offer interest rebates to their customers who have credit life insurance. Although this is not much in nominal terms, a few tenths of a percent, due to the large amount of credit and the long term, a significant amount remains in your pocket.
The other benefit is security. A loan secured by life insurance also provides an opportunity for the bank not to take the house from the head of the remaining party in the event of a tragedy. After all, you didn’t work with it to end up on the street.
This protection can be supplemented by accident insurance. In the event of a serious accident, recovery can take years. Revenues will fall significantly during this period, while the bank expects repayments. If you can’t pay them, they’ll auction off your house even if you’ve been a good customer for years. This is protected by life and accident insurance, from the reimbursement of which you solve this.
Corporate inheritance
In this section, I anticipate that you should find out about the tax implications and make a decision accordingly before taking out life insurance due to changes in tax legislation.
You can take out life insurance not only as an individual but also as a company. You can then specify that in the event of the insured person’s death, the company will receive the sum insured or designate an individual. Let’s say a family member.
If the company is a beneficiary of life insurance:
In the case of a family business, at the time of the owner’s death, the part owned by him is inherited according to the normal order of succession. Thus, the owners of the company may also include those who do not want to run the business, or the still living owners of the business do not welcome him with open arms. A heir who is less competent but has a large share of ownership also makes the operation of the business impossible.
If the beneficiary of the life insurance is the business, the ownership can be repurchased by the business from this money. In this way, the heir gets his money and the business continues to operate.
If a family member is a beneficiary of life insurance
It is possible to take care of family members out of the money already paid from business assets. Life insurance compensation is not covered by the inheritance procedure, so heirs get money much sooner.
How do you know if your life insurance coverage is sufficient
With all these basics in mind, you can review what is currently providing you with a safety net.
If you already have existing insurance, you can see if it is sufficient.
I know there are many among you who entrust this to the one who signed the contract with. But sometimes it needed to review it yourself. Your life situation can change, which the agent doesn’t necessarily know about, and at least you’ll know what you’re paying for. To review this, you can contact us here to make an appointment.
What should not be forgotten: the policy of life insurance.
What does it contain?
It contains what they pay for, what they don’t. It may be combined with other services, and in this case it is not worth considering the value for money. There are already some that operate not only as life insurance, but they can include accident insurance, health insurance, and even any kind of insurance against the scourge of God.
What if your life insurance coverage is not enough?
If you don’t find what you have enough or want extra protection
It is advisable to compare the offers.
I could write that some parts of it are completely unnecessary, and if you ask, feel free to say no to it. On the one hand, I can’t write because if you say no to it and there’s a problem, I don’t want you to be in a bad position because of it. Of course, you don’t have to say yes to every item, you have to personalize each offer individually according to your own lifestyle.
Choosing the right offer for you, putting it together, and comparing existing ones to what is now available seems easy. It approx. hits the level of a schoolboy. The delicacies start with the fine print and the offers offered in the package. In this we can offer you a helping hand. Find us here.
Questions:
- How do you currently protect yourself and your family?
- How often do you review these policy? (if any)
- Do you consider corporate or private financing to be better for this? Why do you see it that way?
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