It is crucial to consider financial obligations to determine the amount of coverage, for example, mortgage payments or consumer loans. Future expenses on children’s education should be planned in advance.
Calculate what income your family will need to maintain its current standard of living in case of unforeseen circumstances. Replacement of 5-10 years of your current income is often recommended.
Factor inflation into the calculation especially when it comes to long-term financial obligations, such as children's education.
Subtract the amount of assets you have, such as savings, investments and other insurance policies that may cover part of your financial obligations.
Calculation example:
Mortgage and Debts: $300,000 (mortgage balance) + $20,000 (other debts) = $320,000
Children's education: $50,000 (cost of education per child) * 2 (number of children) = $100,000
Daily expenditures: $50,000 (annual income) * 10 years = $500,000
Funeral and medical expenses: $20,000
Liability amount: $320,000 + $100,000 + $500,000 + $20,000 = $940,000
Assets and Savings: $100,000 (existing assets and savings)
Required Insurance Amount: $940,000 - $100,000 = $840,000
Remember, a professional financial advisor can help you determine the exact insurance sum you need taking into account all aspects of your situation.
Source: https://www.forbes.com/advisor/life-insurance/how-much-life-insurance-do-you-really-need/
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