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The amount of life insurance cover required depends on your personal circumstances. People with children or families to support may have to opt for a higher cover to ensure financial security.
When calculating the amount of life cover you might need, think about:
The purpose of the life insurance
How long you'll be covered for
Whether you can supplement the policy with additional income
Life insurance policies usually offer a choice between two kinds of payouts: to the beneficiaries when the policyholder passes away; and to the policyholder themselves when the life insurance policy reaches the end of its tenure.
Raising children requires a considerable amount of financial planning. Whatever their age, you may want to think about the type of financial support your children may need if you're not around. This may include childcare costs along with education expenses.
When calculating the amount of money needed, look at:
Look at your regular income after tax, as well as your family's living expenses, such as food, household bills or rent. This can give you an idea of how much your partner may need, financially.
Married Women's Property Act (MWPA)
You can buy an MWPA policy if you're a divorcee or a widower. In that case, you can name your child or children as the beneficiaries. However, you can access the MWPA benefits if you're buying the policy in your name. In the life insurance plan purchased under MWPA, you can name your wife, or your children, or your wife and children both as the beneficiaries.
As a policyholder, you can assign specific percentages of sum assured to each beneficiary, or you can simply divide the sum assured equally amongst all the beneficiaries of the policy. The policy purchased under the MWP Act will give a clear understanding of who the beneficiary of the policy is, and there would be no conflicts on who will receive the claim amount in your absence.
Money paid out from life insurance can be used to repay your home loan, so your family isn't burdened with your debt. The amount of life insurance needed will depend on:
Your home loan balance can be found on your latest statement, through online banking or your mobile banking app.
An insurance policy is a smart way to ensure a regular guaranteed future income stream for your needs post-retirement. A combination life insurance and savings plan policy will generate wealth by investing in a mix of debt and equity along with providing life cover.
If you prefer, you can choose to receive a lump-sum payout when your policy matures.
Once you've decided on the correct type of life insurance for you, you now need to decide how long you'd like to be covered for.
If you have children to provide for, perhaps you'd like to be covered by your policy until your youngest child turns 18 and becomes financially independent, or goes to university.
If you're covering your partner, you may need to replace some income until they retire or perhaps they'd need support for a few years to adjust. Talk to your partner openly about how things would change and what they would need with you gone.
If the purpose of your insurance is to pay off your home loan, then the length of your policy will need to cover the term remaining on your loan. You may have more than one mortgage account and these could have different end dates so do check these.
You may want to deduct any savings or investments from the amount of life insurance cover you need. This way, you're not paying for more insurance than you need.
You should also consider any life insurance you may already have, say through your employer. Although, keep in mind that when you leave your job, you'll lose this cover.
While it's important to financially protect your loved ones, keep your payments at a level you can afford. The higher your cover amount, the higher your monthly premiums will be.
Other factors will be considered when your premiums are calculated, such as age and lifestyle. Good health and youth are on your side when it comes to buying life insurance – your premiums can be locked in at a much lower rate.
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Our life insurance calculator This link will open in a new window can help you calculate premiums and find the cover you need. Just let us know what you want to protect and we'll work out the rest for you.
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