With the unpredictability of life, we all want to leave behind something good for our family. Life just doesn’t move on with memories and what matters is money. So right insurance and investment is what our family truly needs. But how much money is going to be enough is one confusing question that will always pop up in your mind. There is no fixed answer to this. However, there are ways to estimate and amount based on your current lifestyle, debts and other things.
There are a number of rules which can help you determine the amount but again there is no specific thumb rule that gan give you the most accurate answer. The most easy and common way of calculating is the 10x rule. This means you need to save 10 times of your current annual salary. So if you are making 10 lakh per annum. You need an insurance cover of 1 Crore. This is simple and the most easiest way to get your calculations done. But this can not always be right. With passage of time, change in stages of life, expenditure changes. So today I will introduce my readers to one more method of calculating the required cover amount.
Also read: Manage your Debt
DIME is an acronym for Debt, Income, Mortgage and Education. This is one way in which you can easily calculate a more accurate amount of cover that you may need for your insurance.
Lets understand this better.
D: Stands for Debt. Here you calculate all the debt that you have. Loan, Card balance, Outstanding payment of a big amount
I: Stands for Income. You need to multiply your current income from all sources and multiply it by 10 to 15 times.
M: Stands for Mortgage. If you have a home loan or a mortgage outstanding, would you need to replan and restructure your mortgage.
E: Stands for Education: Education is expensive. To ensure your If you have kids, how much is the cost of their future education. This again depends on the number of kids and increase in the fee structure over the time period.
This is generally gauging your financial requirement that can be provided by your insurance cover. By adding all these together, you will get a more well rounded view on the amount to meet your future needs. You can also tweak this method a bit to include any other expenditure that you have like medical or retirement funding. Likewise, you could also subtract few items like the exiting group/family joint policy that you have, or any retirement fund or savings that you have already planned and invested for.