How to determine how much life insurance you need?

Life insurance is perhaps the only product you will buy, hoping you don't have to use it anytime soon.

Hence, it makes perfect sense to spend as little money as possible on it.

However, having the wrong type or inadequate life insurance can put your family's financial future and your hard-earned wealth at risk. 

It is crucial to buy adequate coverage and the best plan that fits your protection needs and budget from a reputable insurance company. 

How much life insurance do I need?

Determining how much life insurance you need can be a complex process involving multiple steps. It would help to seek professional guidance from a financial advisor.

How to determine how much life insurance you need-2

Here are Six Steps to Determining much life insurance you need.

Life insurance for Living Expenses.

As an expat and a breadwinner, it is essential to determine the following;

  1. Where would your family live in the unfortunate event of your early death?
  2. How much money would they need to maintain a decent lifestyle?
  3. What would be the impact of inflation on living expenses?
  4. Risk-free returns they can generate on an investment 
  5. For how long would they need the flow of income?
  6. Impact of income tax 

You can calculate how much money your family needs to sustain a living based on the above factors.

You might also consider that they may not be able to leave the UAE immediately due to several factors like;

  • They might be amidst an academic year, making it difficult to move out and seek schooling elsewhere.
  • Your children might be in crucial years of academics, like grades 9 - 12, and it might be a good idea to move before they complete schooling.
  • Access to International Higher Education
  • Access to the current education curriculum 
  • Your partner's employment and prospects 

In this situation, you may want to ensure that your life insurance is adequate to cover their living expenses in the UAE for 3 - 5 years.

Life Insurance for Schooling 

Schooling is a basic need that has to be taken care of. How much coverage you need for schooling depends on the following;

  1. The annual cost of desired schooling, transportation, and miscellaneous expenses 
  2. Number of years of schooling left for each child
  3. Impact of inflation on the school fees
  4. Potential after-tax return on investments

Life Insurance for Higher Education

As an Expat parent, you may aspire to provide your children with the best education platform to help them launch their future. Having adequate life insurance can make this happen even when you are not around. You can determine how much you need for higher education for your children with the following.

  1. The annual cost of college, living expenses, and other ancillary expenses like insurance, visa, and travel costs
  2. Number of years of college
  3. Number of years to college
  4. Impact of inflation 
  5. Impact of currency depreciation 

Life Insurance to meet Financial Obligations

Evaluate any outstanding debts and liabilities, such as a mortgage, personal loans, or other obligations. Ensure your life insurance coverage is sufficient to pay off these debts.

Life Insurance as Legacy 

Life insurance is the most affordable and quickest medium to create a legacy for your loved ones. For EG: If you are a 40-year-old Indian and non-smoker, you can buy a term life insurance to create a million Dollar legacy at a mere $135.30 per month( 0.162% PA).

Over 20 years, you would have only paid $32,472 as a premium, but you could leave a million-dollar legacy.

Life Insurance to pay for Estate / Inheritance Tax

If you own assets in a country with inheritance and or estate taxes, your life insurance should also cover the extent of the tax liabilities. Typically people buy a Whole Life policy to fund Estate / Inheritance Tax liabilities. 

Additionally, there may be many other reasons why your family may need further sums of money for one or more of the following;

  • Children's Marriage expenses
  • Healthcare expenses
  • To buy a property for living 
  • As seed capital for a business

Your life insurance needs will depend on your circumstances, such as age, marital status, number of dependents, desired lifestyle, financial goals, etc...

Professional help

As a Financial Advisor I have more than 11 years experience in helping people buy the best life insurance in the UAE. I can help you determine the required coverage and buy the best life insurance that provides you the peace of mind that your loved ones will be financially independent in the event of your untimely death. 

Click here to arrange a Free Consultation. 

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