How much should I insure myself for? A simple guideline is to calculate your economic value. Your economic value is the amount of income you will bring in during your whole life.
Illustration
Alvin is 25 years old and earn RM36 000 per annum. Lets assume he works till 55. Ignore inflation and increase of salary for now.
RM36 000 x 30 years = RM1 080 000.
It can thus be concluded that Alvin will earn at least RM1.08 million till retirement. This is his rough economic value. Insurance is meant as an instrument that protects this economic value. If for example Alvin is diagnosed with cancer at 48, his earning capacity might be in jeopardy. Insurance will then step in to compensate him for this loss.
He will not be able to work and bring in the 1.08 million he is capable off. In actual fact insuring oneself for RM1.08 million will be too expensive for the majority of us. However, it remains a good method of measuring how much you are worth economically and how much you stand to lose if an unfortunate event happens to you.
I'm assuming you're referring to the excel home loan calculator I talked about in my other post. Car loans a different and so will write a new post on it. Hope that helps.
ReplyDeleteWhy is it 55 years and not 55 less 25, 30 years instead? He wasn't earning anything before 20 maybe?
ReplyDeleteRM36 000 x 55 years = RM1 980 000.
You're right. My mistake. It should have been 30 years of working life and not 55. 55 is his age. Will amend the post. Thank you (anonymous) for pointing this out.
ReplyDelete