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Life Insurance

5 Obligations That You Need to Account For When Calculating Your Life Insurance

20 May 2020

Life Insurance by Life Stage

The choices you make today can impact your long-term health, wealth and happiness. Understand the important role Life Insurance can play in key life events.

Your life insurance premium depends on what you’re insuring for. But if you don’t address these obligations properly, you might end up with an inadequate policy.

You’ll have to be thorough if you want to find a suitable life insurance policy. Otherwise, your impatience and misunderstanding can result in a number of possible scenarios including the following:

You’ll either end up underinsured or over insured.

Both circumstances are not ideal, albeit in different ways.

If you don’t account for all your needs, you can end up with insufficient cover. And as a result, you may not be able to successfully make certain claims when they’re most needed.

But if you’re not careful enough, you can also get over insured. This means paying for coverage that covers things that you might be unlikely to ever claim for.

Over insurance doesn’t tend to leave beneficiaries in a difficult situation like underinsurance can. But instead, it’s going to take a bite out of your finances.

Therefore, it’s essential to know all your requirements as clearly as possible. Only then will you be able to do your research and find cover that suits your needs.

Let’s see what are the things that you should keep in mind.

#1 – Your Day-to-Day Living Costs

A key thing that you have to factor in is your family’s living costs. Take note that picking a random or universal number is unlikely to be accurate for your particular circumstances.

For this, you need to figure out your expenses for a typical month and write down the total (or make an itemised list, if you wish). Consider including the following:

  • The money spent on groceries and other necessities
  • Car costs, including petrol, maintenance, and insurance
  • Childcare, school fees, education costs
  • The money set aside for holidays and vacations
  • Medical and dental costs
  • Utilities like the internet, water, phone, gas, electricity

Additionally, you may want to include the short-term plans that don’t fit in these categories. For example, a paint job or new furniture for the house that you’ve been wanting to get.

When you have the total, multiply it by 10. That’s one way of arriving at the minimum financial cover that you or your family may need to get back on track in the short term. But there are many other factors to consider and we’re now going to flag some of them.

#2 – Your Long-Term Obligations

Think about the things that you want to provide for your family in the future. For example, let’s say that you want to help your child set themselves up for the future

But what happens if you were no longer around?

That’s where your life insurance policy comes in. The money from your policy can be used by your child or other dependants when the time comes.

It doesn’t stop there, because you’ll likely have long-term obligations as well. And these can be numerous.

Maybe you plan on getting a new car every decade or so, for both you and your spouse. Your long-term plans may also include your child’s tertiary education and paying for your funeral.

Think about all the future obligations that your family will inherit if you were no longer around.

You need to make sure that your dependants have enough funds for these obligations in case something happens. Here’s one way of working out how much money they may need:

Pretend that you’re saving for these obligations on a yearly basis. You can also subtract other income at this point. Figure out the annual amount and then multiply it by the number of years to cover for.

For instance, you may want to keep it going until your youngest child finishes their tertiary education. It’s up to you.

#3 – Your Debt

Your debt won’t disappear if you were no longer around. On the contrary, it can cause a lot of complications for your family.

If you don’t sort out these things, repayments may fall on your spouse’s back. For assets like the family home, someone will have to keep up with the monthly mortgage payment.

Luckily, your life insurance policy would help take care of this too, depending on your sum insured.

Again, write down all of the debts that won’t go away. These would include the mortgage, credit card, and maybe more – you’d know better.

You can either choose to cover the full repayment, or a few years’ worth. The latter would be just to provide your beneficiaries with some time to figure everything out.

#4 – Your Savings

Your built-up savings could reduce the total amount of life cover which you may need, which in turn could reduce your premium. However, some insurance providers may fail to point out this detail.

As a result, some life insurance buyers end up paying a higher premium because they are over insured because they haven’t taken into account savings they may have in place.

But you can try and prevent this. After adding up everything as described previously, you can choose to subtract your savings. This would include your super and investment assets.

#5 – The Number of Dependants

Lastly, you have to consider the number of dependants you have, and their needs.

Think about the lifestyle you want them to continue to enjoy, as well as their future education.

At the same time, your spouse may also be a dependent even if he or she is working. It’s likely that your spouse may have to take on some of your responsibilities.

You can help ensure they continue to maintain the quality of life they are accustomed to if you include all of that in your life insurance.

Consider All Your Obligations

As you see, you need to give it some real thought and properly consider your overall needs and situation before buying a life insurance policy.

If you want to get an indicative quote for life insurance,  feel free to use. In  a few  simple steps, you’ll get a quote of what it’s likely to cost you to obtain the life insurance cover you’d like.

Visit our website and find out what makes NobleOak a highly rated Australian life insurance provider with 140 years of experience.



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