How to Calculate Life Assurance needed by Your Survivors
Most people that life assurance is a valuable tool for protecting the financial security of loved ones, especially the spouse and children. Life assurance can be used to take care of a variety of current and future expenses, including children’s education, retirement, disability, health, mortgage, credit card debt, and funeral expenses. To know the life insurance your survivors need, a simple process as shown below:
Expenses
Step 1: Calculate current and estimated future (assuming she’ll live up to the age of say 75 years) spouse’s Annual living expenses i.e. utilities, groceries, transport, and childcare.
Step 2: Calculate children’s annual living expenses for the number of years they will live with you (say up to age 25 years) i.e. medical costs, school, tuition, books, transport, clothing, entertainment.
Step 3: Calculate burial and funeral expenses i.e. burial site, coffin, funeral service, burial ceremony.
Step 4: Calculate survivors contingency fund i.e. fund for unexpected expenses such as home/vehicle, repairs, medical bills, school fees, and estate expense.
Step 5: Calculate your outstanding debt i.e. home mortgage, credit-card, overdraft, business debts, spousal loans, and other loans.
Income
Step 1: Calculate current and estimated spouse’s annual income and multiply by the number of years she will need that income.
Step 2: Calculate existing life assurance policies to determine how much coverage you already have.
Step 3: Calculate the current value of all your and spouse’s assets i.e. savings account, investments, tangible assets such as electronics, tools, equipments, precious metal and jewelry.
Step 4: Calculate any amount your spouse or children currently receive and/or will receive from National Hospital Insurance Fund, National Social Security Fund, and other forms of social security.
The net deficit (Total Expenses – total Income) is the amount of insurance needed by survivors.
