Life Insurance Coverage – Determining the Value of your Life
Sounds a little cold but insurance companies estimate the money worth of your life before confirming your insurance policy. Human life is invaluable. Every individual is special and important for his/her family. However, insurance companies and underwriters aren’t left with much alternative but to estimate your life worth when determining a relevant insurance policy for you. All applicants have to go through this process of valuation.
Everybody does not qualify for the same insurance policy coverage. Apart from factors like age, health, smoking etc the primary consideration is your income and net worth. Depending on your net worth, the insurance company determines the maximum amount of insurance you are qualified for. There is of course no point in getting an insurance policy which you cannot sustain in the future. It is better always to have an affordable insurance policy which you can manage and which will be of help to you when your family needs it the most.
Your ‘life value’ is determined on the basis of your financial assets or your earning potential. The company will first calculate both. After which the greater of the two will be taken into consideration. Asset calculation is an uncomplicated process. The insurance company will analyze all your financial assets and provide you with an insurance policy of the very same amount. There are no two ways to it. When it comes to estimating ones earning potential, it is not so simple. A lot of people in fact wonder how ones earning potential can be pre determined! Some conventional guide lines and norms like the age income multiplier are used to assess your true income potential.
The fundamental formula of age income multiplier goes something like this-
Age 20-35 30x
Age 36-40 20x
Age 41-45 14x
Age 46-50 12x
Age 51-59 10x
Age 60-65 7x
66+ 5x
You can very well notice that as your age increases your earning potential is deemed to reduce. Another point which not many are aware of is that your insurance company does not permit you to get any amount of insurance in spite of your insistence. Depending on your income you will be allowed to contribute only a certain amount towards your insurance premium.
You are allowed to contribute only 5% of your income towards insurance if you are earning less than $80,000. Contribution percent increases to 8% if your income falls into the category $80,000-$120,000. Those with income falling in between $120,000-$250,000 are permitted to contribute around 10% of their income towards insurance policy. However if you are earning more than the above stated categories then you can determine by your self how much you desire to spend on your life insurance. People who aim to maximize their human life value and want to shield their near and dear ones get the maximum possible life insurance done.
