When asking yourself how much Term Life insurance you need, it is important to review a number of factors. There are many ‘industry standard’ answers such as ‘ten times your salary’, however we at Life Shield believe that this is a such an important question that it is worth looking into this further and personalising the answer to your situation.
We like to separate amounts as Upfront and Ongoing financial requirements:
REPAY DEBTS - We would start by asking you about debts that you would like repaid upon your death. In the event of your death, you do not want your dependants worrying about mortgage repayments or other debts, especially if you are the main household bread winner.
OTHER UPFRONT COSTS ASSOCIATED – We would then ask you about any costs associated with your death such as funeral expenses and how you expect your family to pay for these.
ONGOING INCOME REQUIRED – Finally, and perhaps most importantly, it may be important to consider ongoing financial requirements for remaining family members such as lifestyle costs, education expenses, childcare expenses…. (there are many more relevant to your family’s life I am sure). These can be summarised by an annual income requirement and then this needs to be multiplied by the number of years that this income is required.
Example.
Mary(aged 32) is married to Paul(aged 31) and together they have two young children aged 2 and 5. Mary is the main bread winner for the family and Paul is a full time ‘stay at home’ father.
In the event of Mary’s death, the couple would like to repay their home loan ($420,000), cover funeral expenses (estimated at $10,000) and provide a lump sum that would allow for an income of $45,000 per annum for the next 10 years to cover lifestyle costs and education expenses. This income would allow Paul to continue to look after the children while they are still young and then eventually return to the workforce.
Calculation of Term Life insurance benefit required:
| Upfront Costs | |
| Cancel debt = | $420,000 |
| Funeral expenses = | $10,000 |
| Ongoing Expenses | |
| Ongoing Income requirement = | $450,000 ($45,000 x 10 years) |
| Total Term Life insurance benefit required = | $880,000 |
The above simplified example is only for illustration purposes and in no way should be viewed as advice. There are many other factors that may be relevant and we look forward to assisting you with your personal situation.
Please make an online enquiry or call us and we look forward to discuss any queries that you have and assistance that you require regarding Term Life insurance.
CORRECTIONS REQUIRED:
After having had my income protection, with a company based abroad, for the last 15yrs I recently decided to sort it here in Australia.(Now based here so it makes sense.)
Needless to say the thought of trying to get a similar product for a good price was a concern....
Dr S.T (BDSc)
Dentist
Newman, WA.
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