What capital is suitable for life insurance?

Purchasing life insurance with the right cover amount is key to ensuring your loved ones’ financial peace of mind. Considering factors such as income, debts, age, and family responsibilities helps you make an informed and effective decision.

The capital in a life insurance must cover the family's expenses for a sufficient period of time.

We must also consider any debts to be cancelled or if the family has savings that can be used in the event of an emergency.

In addition, the insured person's age and the family commitments (number of children or dependents and their age) are aspects to be considered.

A simple way of calculating the capital is multiplying the income, usually around 4 or 5 times the annual salary.
 

What is life insurance cover amount and why is it important?

The life insurance cover amount is the sum of money the insurer will pay to the beneficiaries in the event of the insured’s death. This amount is essential to ensure your family’s financial stability and to cover key expenses such as housing, education, or outstanding debts.
 

Key factors to determine the right life insurance cover amount

Family income and financial needs

One of the most important aspects when choosing capital is to analyse the insured person’s income and the family’s financial needs. The goal is for the benefit to allow your family to maintain their current standard of living for several years.

Debts and financial obligations

It’s crucial to consider any outstanding debts, such as mortgages, loans, or credit cards. The life insurance capital should be enough to pay off these obligations and prevent financial burdens on your family.

Age and health of the insured

The insured’s age and health impact both the cover amount and the cost of the policy. Generally, the younger and healthier the person, the easier it is to obtain sufficient cover at a reasonable price.

Family obligations and number of dependents

Having children or other dependents is another key factor in determining your life insurance cover amount. The more people who rely on the insured’s income, the higher the cover should be.
 

Methods for calculating life insurance cover amount

Income multiple method

A common and simple way to estimate your life insurance cover amount is to multiply your annual salary by a factor of 4 to 5. This calculation provides an approximate amount that can cover your family’s living expenses for several years after your passing.

Detailed evaluation of expenses and savings

In addition to the quick estimate, it’s recommended to conduct a detailed analysis of your monthly expenses, current savings, and potential future income to determine a more personalised cover amount that’s better suited to your family’s actual needs.
 

When should you review the life insurance cover amount you have purchased?

It’s important to review your life insurance cover regularly and adjust it to reflect changes in your personal and family situation, such as the birth of a child, buying a home, or changes in your income.