“How much of Life Insurance do I need?” A question frequently asked. So we did what most financial advisers can not do. We coded a Life Insurance online calculator just for you.
It’s free to use, we explain the calculation methodology and is a first for South Africa!
[Not covered in this article are Keyman and Business Assurance type life policies. They are rather straight forward and have well established methods to calculate them. However, individual life policy evaluation techniques are not well founded and calls for us to apply our minds.]
The Current Scenario
You need life insurance and you seek out the help of a financial adviser.
A typical financial adviser (focussing on sales) will plug in your information into his computer and then show you a life insurance amount that is staggeringly high.
He will then calculate a premium which is also very high. Leaving you in an emotionally vulnerable state.
The advisor then makes a move in your favour. “This is expensive. How much can you afford? Having some life insurance is better than nothing at all!”
You give him a premium that you guess is affordable, he then gets his system to generate a quote for reduced life cover. The adviser signs you up and disappears, literally. In most instances this leaves your loves ones at risk.
While affordability is a critical factor in financial planning, it is not the be all and end all. Financial advisers should be educating clients on how to calculate life insurance amounts so that they understand the inherent risks of not having sufficient cover, if affordability is really an issue.
From our experience, when a client understands the risk of insufficient life cover, he or she is more likely to cut expenses in other areas of their budget and make funds available. Having the skill and authority to rearrange a client’s budget lies in the domain of Certified Financial Planners. You should seek the help of these professionals.
Virtual Adviser’s Online Life Insurance Tool – Empower Yourself
We decided to empower you with the knowledge of how much life cover you need via an online tool. With this amount in mind, you can then shop around via different insurers and, if needed, make the necessary changes to your budget.
The life insurance amount needed is calculated using tried and tested time value of money calculations. It is objective and sets the target. It’s an important to number to know and understand.
Firstly, the amount of life insure that you need is dynamic. This means that the amount changes over time as you move through different stages in life (single, married, divorced, had a baby, kids going to university, health issues, promotions, inheritance, retirement, etc.).
Incidentally, when did you last review your life policy?
Secondly, the premiums for the same life cover vary greatly among different insurance providers. This is due to the way each one of them measures risk.
When you are deciding which insurer to purchase life insurance from, we recommend that you solicit the services of independent Financial Planners. They are agnostic to brands and you have a better chance of getting objective advice from them.
Life Insurance Tool (Calculator)
To find out the amount of life insurance that you need, simply complete the form below and click submit. A page will then show you:
- The Life Insurance amount that you need, if any at all, via two methods
- We explain the calculation methods
- The disadvantages of a lump sum insurance policy is discussed, with alternatives
- Factors that determine the premium for the amount of life insurance needed is explained
- Options for Diabetic patients who typically do not qualify for Life Insurance is provided
Go ahead. Have fun while solving a rather important problem…by yourself!
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