Say you have a life insurance for $500,000. That's half of a million dollars, isn't it? A huge amount! Not exactly the kind of number that makes you laugh.
Most people would look at this number today and think, wow, if I die, my family gets half a million dollars! That's great!
Well... not really. Let's take out our calculators and do some calculations.
Suppose you're an average family: Mom, Dad, Daughter, Son.
Say you have life insurance for $500,000.
Say your spouse doesn't earn and you are the only breadwinner.
Say your monthly expenses are $10,000.
That's $120,000 yearly.
Say you need this income for another 20 years, and you add 3% for inflation over those 20 years.
Say you have a 6% yield on that income after tax.
Say you die.
For the next 20 years, to provide your family with just basic needs like food and housing, at present value, you would need...
$1,852,226.95.
How's that $500,000 looking now?
This calculation was made on a simplistic basis and did not count illness, emergencies, school costs, and loss of income if one of the children is unable to earn. If you factor those in, the number would be even more staggering.
Before you buy life insurance, make a checklist of factors you need to pay attention to, such as Annual Income, Taxes, Illness, Education, Annual Inflation Rates, et cetera.
Once you add the expenses and subtract them from what you make, you'll realise that there probably isn't much left and if that little were to disappear because of your death, your family would not be able to make ends meet.
Get life insurance with this simple formula in mind:
7-10 times of your Annual Income = Amount of Life Insurance to be purchased.
This formula should be reviewed every year as your income changes or as your family grows.
One of the most important things to remember is that tragedy can strike anyone at any time. Being young and healthy is no protection against the cruelties of life. While Life Insurance cannot ever substitute your loss, it can help to mitigate further pain for your family.
Comments