Life Insurance

Life insurance needed
Calculate the amount of life insurance you should have using the human life approach.
The concept of human life value procedure is used everywhere in the world, mostly by the underwriters working for the insurance companies and courts to calculate the value attached to human life, commonly referred to as Human Life Value (HLV) CITATION Rob12 l 1033 (Chris and Zaremba). When the value of human life (HLV) is determined, then an individual and his/her family is guaranteed a good living standard depending on the annual income and age. The value is determined in such a way that the needs of the family are taken care of even when the head of the family (contributor) is deceased or in a situation where he/she is unable to provide for the family, due to circumstances that were not planned.
I am 22 years old, and the expected retirement age is 55 years old. I currently earn an annual salary of $45000. From the amount earned, my annual expenditure is as follows:
20% is used for personal expenditure.
80% by my family.
An additional $10,000 of non-wage value is set aside for use by my family. This could be equivalent to the cost incurred by hiring a domestic worker.
(Think of this as the cost incurred by hiring a domestic worker).
At my current age of 22 years, my total value to my family can be calculated as shown in the table below:
Item Calculation Value
Family Expenditure (FE) 80% ×$45,000=$36,000
Non-wage value (NWV) – =$10,000
Total value at age 22 FE+NWV= 36000+10,000 =$46,000
Since I am planning to retire at the age of 55, it means that I have 55-22 = 33 years of service.

Suppose the inflation increases at a rate of 3%, and then the value is likely to increase by an additional $46,000 before I retire. We then consider a discount rate per year, for all the expected annual values to take care of the time value of the money. In a case where the discount rate is at 5%, then the total value of my projected value until I retire can be calculated as follows CITATION Rob12 l 1033 (Chris and Zaremba):
Discount Rate = 5%, Present value = $ 46,000, time till retirement = 33 years.
Projected total value = 0.95×46,000×33=$1,442,100This is the amount of life insurance cover that my family would need to safeguard them against my demise or loss of ability to continue providing for them.
The underwriting guideline uses the following table:

Age in years Salary multiples
0-25 25
26-35 20
36-45 15
46-55 10
The above calculations reveal that I need $1,442,100 to cover my family from my salary; however, my total income is $45,000×25=$1,125,000. The amount of coverage I need is slightly higher than my total income till retirement, and this agrees with the manipulations of the HLV.
Based on the example above, my salary of 70,000 would require coverage of $1,000,000, an amount higher than my total income. This is in line with the results obtained in the Human Life Value Calculation.
Calculate the amount of life insurance you should have using the needs approach.
The needs approach follows some steps as outlined below:
Step1: Estimation of the amount of life insurance policy to buy. The process starts by estimation of the immediate needs as shown in the table below:
The Immediate Need Estimate cost (in $)
The final medical expense 4,000
Settlement costs (including burial and funeral expenses) 16,600
Debts (credit card and Mortgages 157,500
Emergency fund 60,150
Sub-Total 1 178,100
Step 2: Estimating the recurrent income needs:
Income needs Estimate cost( $)
Provision of the children needs for a given duration of time 400,000
Provision for the income needs until retirement 400,000
The retirement income needs 300,000
Sub-Total 2 1,100,000
Adding the subtotals, 1 and 2, the estimated amount of money that my family would need, suppose I die: $1,100,000+178,100=$1,278,100.
The next step now is to find out the value of the assets owned and how useful they can be in offsetting the family needs.
Name of the asset The value attached ($)
Savings in the Bank 50,000
Investments 200,000
The property owned at retirement 250,000
The existing life insurance 200,000
Sub-totals of the assets 700,000
The life insurance need is therefore calculated from the difference between the total amount my family would require suppose I die and the total value attached to the property (subtotals of the assets):
My life insurance need = $1,278,100-$700,000=$578,100.
What do you think is the correct amount of insurance?
The needs approach considers all the necessary needs that are aimed at protecting the future, is, therefore, the most preferred method, since it is deemed to be the most convenient CITATION Kap12 l 1033 (Jack, Dlabay and Hughes). An insurance policy that takes into account more risks is always the best. In the needs approach, the all the possible factors that may hinder the prospective client from carrying out their duties are covered. The method includes even the assets and the alternative sources of income since these are likely to lower the face value. Furthermore, needs approach takes into account the future education needs of the children.
Find the life insurance policy that fits you, how much coverage? What’s the premium?
The best type of insurance
The two commonly known Companies that offer health care insurance are Blue Shield and Blue Cross. The branches are situated in every state in the US. The two Companies provide surgical, medical and hospital care at an average cost of $ 250 per month.
Use Google to find policies and receive quotes
Policies
The Medical systems provided by BCBSIL, serve as guidelines for health care benefit coverage decisions; which may change depending on the various products and benefit plans offered CITATION Kap12 l 1033 (Jack, Dlabay and Hughes).
According to the survey by BCBSIL, there are active, pending and under review policies. The life assurance policies are mainly classified into two:
The term life insurance – This is where an individual insures his/her life for a given duration of time. If the contract expires with the occurrence of death, then the insured is paid back the principle plus the benefits as per the agreement. It is the cheapest and has no cash value. In most cases, the beneficiaries do not get to benefit CITATION Cum13 l 1033 (David, Smith and Vance).
The whole life assurance: This is a permanent life insurance where the recipients are guaranteed cash value and the death benefits in case of demise. The holders of whole life policies are also entitled to dividends, which is calculated based on the total amount of the premiums contributed after a given duration of time CITATION Cum13 l 1033 (David, Smith and Vance).
The cash value is the difference between the total premiums paid and the dividends received. For instance: For an individual who receives a total of $128 as dividends after contributing $250 as the premium:
Cash value = $(250 – 128) =$122
Suppose I decide to take a policy with a company that expects me to pay a monthly premium of $162.80, after 33 years of service, the amount paid = $33×162.80=$5372.40. If the plan pays a dividend of $2046, then the cash value = =$5372.40-$2046=$3326.40 while the net cost to the insured remain at =$5372.40b) Surrender cost index = The net value to the insured’s cash value per anum=$5372.40$122×12=3.6697;
Reference:
BIBLIOGRAPHY l 1033 Chris, Robinson and Victoria Zaremba. How Much Life Insurance Do You Need? Financial Academy, 2012.
David, Cummins J., Barry D. Smith and Neil Vance. Risk classification in life insurance. Berlin: Springer Science & Business Media, 2013.
Jack, Kapoor R., Les R. Dlabay and Robert James Hughes. Personal finance. New York: Irwin, 2012.