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How Can You Simply Determine How Much Life Insurance You Need?

How Can You Simply Determine How Much Life Insurance You Need?

How Can You Simply Determine How Much Life Insurance You Need

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Can you exactly calculate how much life insurance you need? As in EXACTLY determine "how much" financially dependent your family would be when you are not around? Well, honestly it's not possible and hence the best method to determine how much life insurance one needs is "guestimation" i.e. guess + estimation:-)

On a serious note, there are loads and loads of complicated ways to accurately estimate how much Life Insurance one should ideally have, but most of the calculations are so complicated that everyone eventually ends up messing it up and arriving at a wrong value.

So, an easier way out is to simply determine an approximate value of how much life insurance one should have.

According to Life Insurance experts, the following table has been developed to help millions of people like us who do not have the time and energy to exactly calculate the need for life insurance by some difficult to understand formulae.

Age (Years) Multiple of Annual Earned Income

20 29 years 20 times

30 39 years 15 times

40 55 years 10 times

More than 55 years 5 times

As age increases, insurability decreases and also requirement reduces and liability gradually reduces. Thus the maximum requirement is when you are young and have a long life ahead with lots of upcoming responsibilities. Hence the Insurance requirement is the highest with 20 times the annual earned income of the individual. Since annual earned income increases with age, actually the insurability does not reduce too much but just the multiplying factor does.

This simplified method of calculation of life insurance requirement is indeed a very handy tool for quick calculation and this has proved to be more effective than the original rigorous methods.

You can of course go to different websites which will ask you more questions than you can answer age at you would retire (as if I know that now!), the estimated amount of money you would need at the time of retirement (huh!) or the expected rate of inflation and then throw an answer. Well, the answer may be true and may actually be very close to what we show here!
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How Can You Simply Determine How Much Life Insurance You Need? Ashburn