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How Much Life Insurance Do You Need

If you’re considering purchasing a life insurance policy, chances are you’re looking to find some peace of mind and to provide support for your loved ones should you pass away. When determining the amount of life insurance you need, you’ll want to think not only about your financial circumstances, but also those of the beneficiaries you intend to name.

What Can Life Insurance Pay For?

The short, simple answer is anything. When beneficiaries receive a death benefit, it’s up to them how to spend it. There are no restrictions around a beneficiary’s usage of a life insurance payout.

When you set up life insurance coverage, you might want to sit down with the people you plan on naming as beneficiaries and discuss your intentions, especially if you are the financial planner of the family.

Though there are no rules, here are some examples of ways people use life insurance payouts:

Mortgage: When calculating the ideal amount of life insurance coverage, some people will include the amount of their mortgage in the equation. Death benefits can be used to pay off a house or property.

• Debt: Welcome to adulthood; there are no cookies here but we do have debt. Whether it is student loans, a half-paid off car, or credit card debt, beneficiaries can use the tax-free life insurance payout they receive from your policy to pay off any debt you leave behind or to pay down debts of their own.

• College education: If there are kids in the picture, life insurance payouts can be used to cover tuition and other educational expenses.

• Income replacement: The loss of a financial contributor, whether considered the head of household or not, can be devastating. Life insurance payouts can be used to help your family keep up with the cost of living should you pass away unexpectedly.

• Childcare: Whether you are a stay-at-home parent or work full-time, consider the cost of childcare for your family should you pass away.

• Final and future expenses: Death isn’t fun to think about, but being prepared for the unthinkable can help offer some peace of mind. Your beneficiaries might use their death benefit to cover your final medical bills, pay for your funeral (around PKR 50,000 average expense), or cover the cost of a move should they decide to relocate.

Diagnosing Your Coverage Needs

The burning question is “how much life insurance should I have?” While there’s no clear consensus amongst financial advisors, one rule of thumb you can use to help diagnose your potential needs is that coverage should be six to twenty times your annual income

When calculating the amount of life insurance coverage you need, you might consider the following.

Total Everything Up

Add your monthly expenses to your debt and then factor in any additional financial components that made it onto your list.

Next, determine how many years of life you want to help cover with this insurance policy. One way to do that is to subtract your current age from your planned retirement age. Now take that number and multiply it by your annual salary.

How do you feel about that figure? Does it seem like the right amount of coverage? Would it cover the amount you wrote down earlier? Are there any factors that were left off that list that you would like to consider?

We would love to give you clear direction here, but we can only offer guiding questions. Figuring out how much life insurance you need is a deeply personal matter.


What Are The Different Types of Life Insurance?

If you were today-years-old when you found out there is more than one type of life insurance, you are not alone. While there are many, many varieties, there are two main types of life insurance: term life insurance and unit-linked life insurance.

Policy Type

Term Life Insurance

Unit Linked Life Insurance

Policy Length

Coverage for a specific amount of time

Coverage for a specific duration, e.g. 10 years, 15 years


Death benefit with no cash value

Death benefit and cash value that accumulates as you pay premiums

Which Type Of Policy Is Best For You?

Though they can guess your age and zodiac sign, the online quiz makers have yet to crack the life insurance policy code. And that’s just as well, because picking out a policy is a big (and deeply personal) decision. Ultimately, you’ll want to factor your age and current financial situation into the decision-making process.

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