Buy the life insurance that you require

The coverage that you get from a life insurance is for the purpose of providing enough financial help to your dependents when you die and are no longer able to help them.

Most probably people look into the life insurance as a source of investment. Various investments provide various benefits depending on their features. It is very important to go through different options when you are planning for your financial future.

The simple thing to do for life insurance is to let your family pay the bills and live their life with planning regardless of your absence.

The requirements of the life insurance depend on the stage of life you are in. For example, if your age is 20 and you don’t have any dependent and have little responsibilities, you don’t require a life insurance.

On the contrary, if you are the only person who is earning for your family and children, and you don’t have any savings, you must need life insurance. You must immediately start planning to buy a life insurance if your family depends on you.

Calculate the amount you need

Once you are clear with the thought of buying or not buying the life insurance. You have next question on your way. If you don’t need a life insurance, that’s fine. And if you need life insurance, you need to know the amount of money the life insurance policy is going to give you.

According to The Life Insurance Association of Singapore, as a basic coverage for life, one should intend to plan for the life insurance that will provide coverage 11 times the annual income.

But according to Kiplinger, the above formula of having coverage of a number of times is inappropriate. One should emphasize on coverage that their family require afterward.

If we want to make it easier, begin with your monthly expenses. Calculate the number of months till your family becomes independent enough. When you multiply the number of months with your monthly expenses, you will get an estimate of the amount needed for your family’s needs.

If you are under debt, mortgage or any loan, add that amount also in the amount required for the family needs. Remaining is the education cost of your child’s higher education and related expenses. When you add all these expenses together, you will come to know about the estimated amount of coverage you would require.

For example, If your family’s monthly expenses are $2500 and your kids will become independent after 15 years. Multiply the monthly expenses with 180 months i.e. 15×12. This result in the number of monthly expenses is $450,000. Suppose you have $100,000 to pay off as debt and need $100,000 for your children’s education. You will need the total coverage of $650,000 ($450,000+$100,000+$100,000).

Also, don’t forget to sum up all the savings, Central Provident Fund account balance, your partner’s income as well as other sources of income from the family by other members of the family so as to cover the expenses. The difference that you find between your family’s finances and available money will be the amount of insurance you would require to buy.

Buying the right plan

When you begin to search for life insurance policy, remember that there are two types of life insurances. One is whole life or universal life insurance policy. These works at a fixed rate till you are paying your premiums. These policies provide you a cash value that increases with time and also pays a fixed amount of money after you die.

Whole life insurance is costlier than term life insurance due to the difference in the cash value. In case of term life insurance, you don’t get cash value and you get a fixed payout that results in a low value for life insurance. The term insurance is bought for a certain period of 10 years, 20 years and so on. It depends on the time when your children will be self-dependent.

The whole life insurance policies are designed to meet the needs of the retirement and also for investment purposes but are not similar to savings deposits where the amount we saved for years are getting back to us.

If you want life insurance coverage, term life insurance is best suited for you as the premiums you pay will protect your insurance and also invest a part of the income.

Investing the difference

You can also choose to have a greater coverage for retirement by buying a term insurance policy and investing.

A 40-year-old male is paying approximately $400 a year for 20 years for a term insurance policy of $600,000 whereas a similar policy in whole life insurance charges $8,880 per year. The cash surrender value for the whole life policy can be more than or near about $170,000 after the completion of 15 years of the policy.

The term life insurance and whole life insurance have same insurance protection but will be able to save more money by term insurance only. People usually spend the difference. If the person has self-control on him/her, then only he/she could save the difference.

Making a set up where monthly savings are done automatically with the help of the Giro banking service can save you to overcome this issue. It is trouble-free and calm to buy a whole life insurance as it is recommended and done by most people. It is more like an investment along with cash value feature. The most important thing to make a decision is your requirements to buy the type of life insurance that meet your requirements and your present and future financial situation.