A life insurance policy can be a good way to leave your financial affairs in order or to provide financial independence to your family. The reasons for needing life insurance cover can vary, and planning ahead of time is one of the best ways to get a policy that is tailored to your specific needs.

Add-ons to a life insurance policy can include critical illness coverage, disability coverage, and personal liability insurance. These insurance products can raise life insurance premiums, but they are also useful additions to life insurance. A life insurance policy only pays out if you die, so with these add-ons, you can enjoy some of your long-term policy payouts while still alive since a payout is made should an occurrence take place.

Having said that, finding highly optimised life insurance can be difficult. However, there are ways to obtain a life insurance policy that will cover your financial obligations if you die. Getting a well optimised life insurance policy will help you avoid being over or under-insured. Overinsuring a life insurance policy can result in higher premiums, while underinsuring it can result in a lower-than-necessary compensation package.

What is the first step to do to get the life insurance cover you need? 

Before shopping for a life insurance policy, you should evaluate your financial needs. This assessment includes the costs of items as well as the costs you want to be covered when you die. The DIME formula is the most commonly used method for determining what to insure.

The DIME formula considers the most crucial aspects of life. DIME is an acronym that stands for Debt, Income, Mortgage, and Education. The DIME formulae are discussed in depth below.

Debt

The debt section is where you enter all of your personal debts, including your loans. Debt includes all types of debt and quantifying it to arrive at an accurate figure. Include your store accounts, car loan, and any other debts you have.

Since life insurance policies now cover funeral costs, it is safe to include the cost of your funeral in your debt. The cost of funeral debt includes all funeral expenses, including repatriation and undertaker fees.

Income 

The income section is where you decide how long your family and other beneficiaries will require your financial assistance. This will include the number of years your family will require your financial assistance.

After determining the number of years and months that your family requires your assistance, multiply that figure by your current income. For example, if you discover that you will need to support your family for the next 5 years, multiply your monthly income by 60 months. The sum you receive will be the amount you add to your life insurance policy.

Mortgage 

This section requires you to calculate the amount of money required to pay off your mortgage. The best way to deal with this section is to run an amortization calculation or obtain a statement from your loan provider to get a more precise figure.

The amount to be added to the life insurance policy must be the total outstanding amount of the mortgage loan that is owed at the time of taking out the life insurance policy. If you die before making a home loan settlement, your beneficiaries will be able to pay off your mortgage.

Education 

In this section, you must calculate the cost of tuition and other school-related expenses for your children. Preschool, primary school, high school, and tertiary education will all be required. The amount required for education should be the total amount required for all children to complete their studies.

When calculating the cost of education for your children, you must account for inflation. You will be able to include the cost of your children’s education using this method. Tertiary education can have very high educational costs.

The DIME formula will allow you to calculate the total coverage required for your household to survive financially after you die. However, the DIME formula can be limited because it does not account for your savings or insurance premiums. In general, the formula ignores future costs and income.

What to do after finding the life cover you need

The next step is to add up the DIME results and get a quote from an insurance company. You can use online calculators to estimate your life insurance coverage before purchasing a policy. The results will assist you in determining which life insurance providers are best for you.

You can also supplement your coverage with disability insurance, critical illness insurance, or income protection insurance. Adding these coverages, however, will raise your life insurance premiums.

Conclusion 

Since death is unavoidable, planning ahead of time can provide a solution to ensure that your loved ones, dependents, and beneficiaries are taken care of. A life insurance policy pays a lump sum to the policyholder’s beneficiaries. There are options for obtaining a life insurance policy that will cover everything you require while not leaving you under or over-insured.