Do A Need Analysis Before Buying Life Insurance

Do a Need Analysis before Buying Life Insurance

by

seojesica

The general awareness and acceptance of life insurance has grown today into a necessity that cannot be ignored. The importance of investing in a life insurance policy and the significance attached with an insurance cover have been ingrained by a lot more people today than what the case was a few years ago. However, the issue is not as much about investing in an insurance policy, as it is about the thinking that should go into the decision making process, when you buy life insurance. The question is of doing a need analysis when you buy life insurance.

What is need analysis in life insurance?

While the term may seem to be some technical buzzword, in layman s terms, the idea has to do with the kind of needs that you may have at the present as well as in the future. Need analysis in life insurance is all about your ability to deal with the present and the future in terms of financial implications for you as well as your family. When you do a need analysis, you would know the maturity amount that you need to have in place at the end of any investment, you would be aware of the kind of insurance cover that your family would need well into the future, and you would be in a position to compare life insurance and choose the best in terms of the one that fits you the best.

How to go about a need analysis to buy life insurance?

Life insurance cover/Investments in place: The first step in conducting a need analysis in terms of insurance cover is to identify the coverage that you may already have in place. You would then calculate the expenses that you may incur on a day-to-day basis these are the expenses that you would not be in a position to avoid, and are recurring on an on-going basis well into the future. As you would expect, it is of crucial importance to factor in your dependants and calculate the kind of needs that they would have in future.

What are your expenses? There are many aspects that deserve your attention, as you go about your need analysis for insurance cover. Loans that you currently serve, for instance, turn out to be important factors that tend to drain your resources well into the future. If your spouse is not actively in the workforce, you cannot rely on financial support from your better half to enable your family to enjoy a confident and comfortable lifestyle, unless you have made provisions with life insurance. Further, you cannot afford to ignore some of the big ticket expenses that may be glaring into your future the planned education of your child, the impending marriage of your daughter, or having to take care of someone s special needs in the household could be quite challenging. If you have invested into financial tools, have you ensured that the maturity amount from the investment would take you through the rough patches of life that your family and dependants may have to go through?

Need Analysis in Life Insurance: Once you have summed up all the expenses and liabilities, along with the assets and investments, you could calculate the financial needs on the death of the primary person to be insured with the insurance cover. They could be lump sum needs, as in the case of marriage or higher education, or monthly expenses. Identify the shortfall that there may be, without considering the primary earner s income levels.

Now, compare the total needs that your family would have from today, with the total cover provided by your life insurance policy today. If there is a difference (and in most cases, there will be), that is the extent to which you would have to buy life insurance. And once you have arrived at this point and you know what the shortfall is, you could then go ahead and compare life insurance to see how you would fare in the light of this need analysis for life insurance.

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