Calculation of insurance you need

Before we start first try to understand one thing, if you buy a car or house; you could easily calculate it’s value. But what about your life? How could you understand your life value? There is a concept called Human Life Value calculation. By this calculation you could easily understand your life value.

There are some easy and simple stepes. I am not giving you the details, just trying to give you some basic knowledge.

Step 1: Calculate your earning

Before you calculate your insurance need, try to calculate your total earnings. First addition your per month income.
That includes your salary and other source of income. Next multiply it with 12. Looks hard?? I am giving you an example. Let’s imagine Mr. X earns per month 40,000 bucks, he also earns from banking interest 1000, and also he earns 10,000 bucks from house rent. So his total income is (40,000+1000+10,000)*12 = 6,12,000

Step 2: Now deduct your monthly expenses from that income

Now this is natural that you have to spend  some money from that income for your day to day expense. It may be for food, for cloth’s {may be for a dinar date }. Now deduct all those from your total income. Now again call back Mr.X, he expanse per month average 20,000 bucks (5000 for some unknown reason). Here the value in his hand is called insurable income. Here Mr. X’s insurable income is 6,12,000-(20,000*12)=3,72,000

Step 3: Determine the time for which the income should be insured

You may think of previous retirement, someone may think about the retirement after 60, or some may think about retirement after 65 (shit man). So you have to plan it first. Then you could understand for how long you should insured your income. Now Mr. X is now 30 years age, and planning about his retirement at the age of 60. Now he has to calculate his total insurable income for his entire life. That is 3,72,000*30=1,11,60,000
 

Step 4: Remember about the inflation

Before you calculate your insurance need, don’t forget about a devil, name inflation. Do not forget to add the future value factor with this insurable income. You can find many future value calculator on web search from where you can easily calculate the amount you should need to invest. It is very important, as because the inflation rate is day to day increasing, it may happen that in future Mr.X’s family need more money than today for maintain the same type of life standered. So please do not forget to add inflation rate.
 

Step 5: Final Fantasy

Now the final semester, you have already calculated all the facts and figure. And may be spend a lot of time and papers. Now ask your insurance adviser about the Sum Assured they are offering you. From that you can easily understand how much money they are offering you for anything bad happen. Like that you can calculate how much insurance do you need for your life.


 
We have discussed in this post about all the facts and figures you should calculate and understand before take an insurance policy. Hope this post will helps you a lot to understand the Human Life Value concept and also from this post you can easily understand the value of your valuable life.