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How To Calculate the Value of Your Life Insurance 

When you’re opting to buy an insurance policy, it’s best to calculate how much life insurance you need. Of course, this can be a hassle for many because you never know the right amount. However, there are plenty of ways to calculate the amount of needed insurance. 

You have to keep a lot of things in mind when calculating. You can buy several types of insurance, with a couple of subcategories each, so you need to know which one is right for you. Costs vary from one type of insurance to another. Knowing the right one will help you calculate your life insurance value even easier. 

How do you calculate the value of your life insurance? We are here to mention details and categories of life insurance and help you calculate the value. 

What is life insurance? 

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The amount the policyholder paid throughout his life is the amount the insurer will pay his beneficiaries after the insured dies. This amount is called a death benefit.

Types of life insurance 

There are two types of life insurance to look for – term and permanent life insurance. Unlike permanent insurance, term insurance is a simpler and more affordable type. Also, there are insurances meant for groups and ones for individuals. 

Term life insurance 

Term insurance is a primary form of life insurance. This insurance type can last from one to 30 years, depending on one’s needs. It pays in case the individual dies during the policy term.  

The level term has a consistent death benefit for the duration of the policy. In the decreasing term, the death benefit drops over time. 

The policy premium depends on the age and health of the insured person. If it’s renewable, it can continue up to a certain age and for additional terms. Premiums can be level for a specific number of years, then change because of the insured person’s age. Policyholders can convert some term insurances into permanent life insurances. 

The premium policy term can sometimes be tricky. Therefore, you need help finding a lawyer to understand your insurance better. If you had no insurance claim after the policy expiration, you get no premium refund. Some people will get premium protection they didn’t need and receive fair value. That’s why some insurers created a return of premium.  

The premium can be higher for this insurance type, and you have to keep it active. Otherwise, you’ll lose a premium return benefit. 

Permanent life insurance 

Permanent insurance has a consistent death benefit, no matter how long you live. It has its subtypes – traditional, universal, and variable universal life insurance. If you choose standard insurance, the pricing will stay at the same level.  There is a life insurance policy called Primerica Life Insurance, primerica reviews is a life insurance company that has more than a 2 billion dollar revenue from term life insurance premiums.

However, the death benefit can increase in cost as you age. Some insurers overcharge a premium in the early years to invest in the insured’s future. 

How to calculate your life value? 

There are a couple of ways you can calculate the value of your life insurance. You can measure your value by the rule of thumb, income replacement, analyzing, or human life value. 

Rule of thumb 

The rule of thumb is the simplest way to calculate your life value. When you’re calculating, multiply your annual income by 10. The total number is the amount you pay for your death benefit. Of course, your annual salary and other factors may vary, so this can serve as an idea.  

Although it’s not perfect, this method gives you a good starting point for the coverage amount. 

Income replacement 

Income replacement is a more complex method for value measurement. You calculate the total coverage by adding total debt (car loans, student loans, mortgage, credit cards) and expenses (food, rent, child care, clothing, health care, medical bills, funeral, burial). Subtract these things from your investments to see how much coverage you need.  

Analysis 

The analysis is the method that is similar to income replacement value. Calculate the value by counting the everyday family expenses that last until the death of the youngest family member. It includes loans, dependents, children’s marriage, education, lifestyle, etc. 

When you calculate every mentioned aspect, you will get the total amount for your family’s needs if you die today. Then subtract your life insurance policy, and you will get the gap you would have to cover. The analysis may not be a perfect method either because the financial needs can also change over time, but you can estimate more meaningful results. 

Human life value 

Human life value (HLV) is the most modern approach for calculating the value. It represents the total coverage necessary for your family to cover expenses after you die. In other words, it calculates the money amount that your family would require. 

HLV calculator can determine if your coverage is adequate if you have the right insurance policy and helps you figure out how much insurance is necessary for the next move. It will also calculate your age, annual salary, expenses, and life coverage. The total number represents your monetary life value. 

Conclusion 

Knowing how to calculate your life insurance value can help you sort many things out. You need to count on all the determining factors and choose the right insurance.  

Red Note: 3 June 2022

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