A lot of successful business owners rely on the sense of security that their huge profits give. They spend most of their time growing the business knowing that it will provide for the needs of their family but is this enough?
The rising cost of living can often propel the need for insurance to cover any unforeseen contingencies or losses. Increasing cost of living can imply that the average income required by an individual or a family unit is also increasing, thus escalating the need for Income protection insurance. This ensures that in the rare occurrence of the loss of income of the primary bread earner (due to illness or injury), the minimum income needed for the sustenance of the individual or the family continues to flow in.
In addition to income protection insurance, life insurance and health insurance, we have generally realised and accepted the need to insure material possessions as well. For this reason, it is very common for an individual to spend their hard-earned money to pay the premiums for home and contents, caravan, boat and car insurance.
Whenever we talk of Personal Insurance the first thing that often comes to our mind is Life Insurance. Life Insurance refers to the kind of policy which pays out a lump sum to the nominated beneficiary in the event of death or terminal illness of the policy holder. This sum of money can be critical for the financial security of the dependents of the policy holder.
Every individual during their lifetime tries to earn the maximum possible for themselves or their family and strives to provide the best material comforts that money can buy. A booming business is not an assurance of security for people you will leave behind, especially if none of them take an interest in taking over the company once you are gone.
We do not want to deprive our dependents of these material comforts even when we are not around and for this reason, adequate Life Insurance coverage becomes imperative.
There is no simple answer as to how much Life Insurance cover can be considered enough. Although the amount of Life Insurance cover required varies from one individual to another, the amount of debt that the individual has accrued in their lifetime is often be the basis to calculate the total Life Insurance cover required. To this, you can add the cost of education of dependent children, healthcare requirements and most importantly, an average estimate of monthly household expenses.
The following steps could prove useful in calculating your total life insurance requirement:
1. Add up all personal assets, such as property (if any), shares, bonds, fixed deposits, savings and existing life insurance (if any). This summation is denoted as “A”.
2. Add up all debts, such as home loan or mortgage, personal loan, car loan and credit card debt. This total is denoted as “L”.
3. Add up approximate cost of education of your children, cost of marriage of your children, approximate funeral expenses and approximate estate expenses. This summation is denoted as “C”.
4. Calculate a ballpark Insurance cover by the following simple formula->Total Insurance Cover = (L+C)-A
Another simple way of calculating how much life insurance is enough to ensure the future of your family is to total your average monthly household expenses for the last 12 months and multiply it with your remaining work life. Insurance cover = Yearly Household Expenses * Years till retirement.
Just as there is no simple answer to the question “how much insurance is enough”. Similarly, there is no standard answer to the question “how much will life insurance cost”. The premium payable for Life Insurance depends on a larger number of factors such as type of life insurance plan selected, amount of life insurance coverage applied for, age and sex of the policy holder, general health conditions and past medical history of the policyholder as well as your immediate family, choice of physical activities and hobbies, intention to or record of foreign travels, along with some other factors as well, which vary from one insurer to another.
Whatever life insurance policy you might choose, it could certainly help to support dependents into the future so keep growing your business and consider investing a portion of your earnings in the security of your loved ones.
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This guest post was created by Lynette Argent at Million Dollar Woman. Million Dollar Woman is an Australian insurance brand offering Life Insurance products designed to meet the unique needs of women.
