When you buy a life insurance policy, the death benefit turns out to be the most vital component. It is the amount that your family will receive in case something were to happen to you. But what if you miscalculate the sum assured? This is why the death benefit has to be narrowed down to a certain number to safeguard your family’s finances. Understanding the future needs of your family also allows you to estimate not only the daily expenses but also the requirements to come like college fees and tuitions. Let’s look at how you can pinpoint the required sum assured for your term life insurance.

Multiply Your Income By 10

Though such a method does not take your family’s expenses into consideration, it can give you a rough estimate of what your family would require. It also doesn’t account for the contribution of you or your spouse as a homemaker. The expense of services like daycare and others that a homemaker does has to be taken into consideration.

Account for Various Debts & Expenses

You can now calculate and add various debts and expenses to the sum assured of your life insurance for an approximate amount.

Debts: If you have any home loan or personal loan to your name along with the mortgage loan, you have to count it in your sum assured as it was supposed to be paid off by you. You can also account for the cost of your funeral and the last rites so as to lessen the burden on your family.

Income: By considering the age of your spouse and children, you can estimate the number of years your family would require financial support. This will also give you an idea of the number of years your children will be dependent until they finish their education. You can multiple the years by your income and the amount is another component to be added to the final sum.

Education: With the number of kids and the age of the children, you can work out the amount needed for their high school and college education.

You can also include your savings and other investments you may have but it is not necessary as some extra financial help will not go in vain.

Tips to Keep in Mind

• It is advised to get a larger sum assured than whatever the calculated amount comes out to be. This will aid in considering the inflation rate and other needs of your family.
• As years go on, your income is going to increase as well as your family’s expenses. But if you were to pass away, the only financial aid your family would have is the death benefit, hence preparing in advance will help in better planning.
• You can also choose a longer policy term to cover your family for an extended period and opt for some smaller insurance policies to increase coverage.