How Much Insurance Coverage Do You Need?
If you have financial dependents, you will need life insurance to protect their financial wellbeing in case the unthinkable happens.
The question is, how much coverage do you need?
The easiest way to find out is by using our coverage calculator here.
But for a quick estimate, calculate these three considerations:
- Your annual income
Your income supports your family's lifestyle, so you'd want to replace it with a lump-sum insurance payout if something happens to you. But they’ll need more than just one year's worth, right?
That’s why we recommend multiplying your income by 10 or 15. This will also give your family the option to invest and keep generating your income year after year.
Example:
If you earn RM36,000 a year, multiply it by 10 to get RM360,000. If your family invests it at 10% return, they’ll get around RM36,000 annually, replacing your income without touching the RM360,000.
- Your outstanding loans
If you have mortgages or car loans, do not leave this burden to your spouse. Make sure your life insurance coverage is enough to pay off all your loans should you pass away.
Many banks require a Mortgage Reducing Term Assurance (MRTA) to settle your mortgage in case of death. If your MRTA covers the full mortgage amount, exclude it from your life insurance coverage.
Example:
You have a RM350,000 mortgage and RM70,000 in car loans. But you have an MRTA that covers the full mortgage amount. So your outstanding loans that need to be included in your insurance coverage is RM70,000.
- Your children’s education costs
Finally, if you have school-going children, estimate how much their education will cost from primary right up to university. If you plan to send your kids to private schools or overseas, do include this in your coverage amount.
Example:
You’ve determined that the education costs per child is RM250,000. If you have two children, you will need RM250,000 x 2 = RM500,000 for your children’s education costs.
Now you need to add the three considerations above. Your replaced income + your outstanding loans + your children’s education costs = RM360,000 + RM70,000 + RM500,000 = RM930,000.
This is the amount of life insurance coverage you should get. You could also reduce the amount further by deducting your current household savings.
After that, all that’s left to do is choose the right plan for you. You can start by checking out our comparison table.
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