Basic Budgeting On How Much Insurance To Buy

By on February 25, 2017

There is hardly an individual who does not spend a part of his monthly income on an insurance premium. Let alone a real estate investor.

Apart from securing the future in case of an untimely death, another reason behind getting coverage is that in some types of policies, once the maturity date is reached, they get a good coverage amount that will help them in the post retirement phase.

However, it is always a smart choice to understand how much coverage you would actually need as the more coverage you opt for, the more monthly premium you will be required to pay to the insurance company. It is fair to say that the more you are willing to pay, the more coverage you will get and vice-versa.

So the level of coverage you will sign up for is usually related to your income or cash flow.

Let us understand the factors that you should take into consideration while deciding on the amount to insure yourself as an individual for.

Set your goals

You need to set goals for your life and then project a tentative timeline by which you aspire to achieve those goals. These goals could vary from acquiring more properties to buying a car to paying for your child’s higher education.

While the purchase of the car may have a deadline of 5 years from now, the financial needs for your children’s education expense could only be in 20 years time.

Prepare a comprehensive list of all these goals and the tentative cost that needs to be incurred to achieve these goals.

When procrastinators set goals, they tend to think about it in their heads and never take any action to reach those goals. Whereas action takers who put it upon themselves to reach their goals tend to put everything in writing.

List down your financial and personal goals, and plan out actionable activities that will enable you to attain them. You might also want to set a timeline for milestones to attain so that you keep track of where you stand at any point in time.

Having a clear plan for the foreseeable future will help you work out your finances and budget accordingly. This is especially important when investing in real estate.

When the numbers are worked out, you should be able to see for yourself how much you can set aside for insurance plans that will give you a reasonable coverage while not compromising on your personal plans.

Sum up your current household expenses

You’ve got to chalk out your monthly expenses that goes behind various household commodities and regular household stuffs. This should include things like grocery expenses, housekeeping expenses, electrical expenses, and other general expenses.

First deduce the monthly expenses, and from there calculate the annual expenses.

Don’t forget to set aside an emergency fund as you will never know when you will run into a situation where urgent cold hard cash is needed.

Also take into account festivals or special annual occasion where you are expected to spend more money. This can include the cost of an annual holiday which you promised you wife when she agreed to marry you. Or the Christmas expenditure you have to spend on presents for a big extended family.

There is also the annual property tax you have to take into account especially when you are a real estate investor.

Outstanding loan amounts need to be calculated

You may have a car loan that will get over in the next two years, a mortgage, or a business loan that may get over in the next ten years.

So you would need to calculate the total outstanding amount that you have currently against your name.

Future loan liabilities can only be projected when you have devised a clear plan as stated previously.

Beware of going into default as having bad credit is another problematic situation that brings with it an altogether different set of drawbacks.

Life insurance calculator will come handy now

Once all the amounts are finalized, get hold of a life insurance calculator and enter these amounts as an input to the calculator.

There are plenty of life insurance calculators available on the internet that will get the task done for you once you enter your age in the calculator. You will then get an idea about the total coverage that would be required by you in the future.

Once this coverage amount is fixed, you will know what you are looking at and accordingly you may decide on the insurance plan that you will go for.

If you are unable to locate a calculator that talks sense to you, the best choice is to call up your insurance agents and request for them to work out the tables for you. Let them work a little harder to make their commissions.

You can expect them to request for your personal details including your line of work, your health history, household income, number dependents, etc. But bear in mind that different insurers may have a different end result for you as they work with their own internal formulas and equations to generate those results.

There are certain additional things that you may want to take into consideration while deciding on the amount to cover like whether your spouse will work in the future after your death, or whether you will give out a part of your house as rent which will earn your family some extra bucks after your death.

Although questions of these sort are kind of taboo, they are required for a more accurate breakdown of data. But agents deal with these information on a daily basis and you can rest assured that your details will be kept confidential.

It is always a good thing to determine on a range of coverage amount beforehand so that you don’t end up paying extra premium and burn a hole in your pocket.

A lot of people buy more as they can afford it. But whether or not they are essential is questionable. You would certainly want you and your family members’ future to be secured by means of insurance but then for that you should not sacrifice your present life by paying a major part of your income behind payments of insurance premium.



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