How to calculate the value of Life Insurance?

by Alex Musk

How much does life insurance cost for my profile? This is a question asked by many people who want financial protection in the event of death and also in life. The answer is that it depends, and we will cover the reasons for this in the article below.

Purchasing life insurance has become an increasingly common practice among Brazilians. Data from the National Confederation of General Insurance, Private Pension and Life, Supplementary Health, and Capitalization companies confirm this changing scenario

 The growth occurred as a result of a “more preventive posture and the concern of people to guarantee an income in the future for themselves or their family members,” – which directly implies people’s interest in the face amount value of life insurance.

In 2020, for example, the life insurance industry was impacted by both the pandemic and low-interest rates. This reality affected the profitability of the sector, as the mentality of Brazilians in relation to the value of life insurance was also impacted. Even so, the performance of the insurance market, according to CNseg, was positive, as the sector grew by 2.8% until September 2020, even with a negative GDP.

Although the awareness of Brazilians has improved on the subject, there is still a lot of doubt when taking out insurance, among them: the value of life insurance. The amount that would be charged in the installment is the item that causes the most confusion when calculating life insurance. 

But why is this question so common? In general, there are no ready-made plans, with prices already defined. That is, it is not enough to do a simple Google search to find out which company offers the best conditions. Before, the operator needed a lot of information about the customer in order to close the appropriate payment, according to each reality.

In view of this, this content aims to address the main aspects taken into account when calculating the value of life insurance. Keep reading and ask your questions!

What is the average value of life insurance?

As already shown, the value of life insurance depends on the coverage contracted and also on the insurance company that is making the product available. 

It is natural that your planning changes according to the different stages of life. Years pass needs change, and as people mature, priorities become one: financial security for the future. 

Life insurance that adapts to your different needs can be a great ally to face daily uncertainties. Therefore, it is essential to understand that life insurance can be used in life.

But how is life insurance calculated?

The value of life insurance varies according to the coverage stipulated in the policy. The more services contracted, the greater the value of the insurance. Currently, there are several types, such as:

  • Accidental or Accidental Death;
  • Funeral Assistance;
  • Serious diseases;
  • Permanent Total or Partial Accidental Disability (IPA) – which can extend to a specific part of the body, such as the hand and eyes. 
  • DIT (Period for Temporary Disability);
  • Special Compensation for Illness
  • Etc.

To determine the value of your life insurance premium, insurers assess the following aspects listed below.

Monthly income

The first item is about the contractor’s monthly income. 

This information is essential as it allows insurers to offer life insurance that allows the insured and his family to maintain a standard of living even in the event of an unplanned event.

Monthly income is the sum of all sources of income that the insured has, regardless of whether it is obtained through formal employment or autonomously. 

Age

Depending on the contracted product, the insurance premium value increases according to the customer’s age. For example, companies consider the risk of death of a person over the age of 60 to be greater than that of a person aged 30, even though a fatality can occur with the younger at any time.

Medical history

Companies also take into account the patient’s health when calculating the value of life insurance.

Before signing the contract, the insured must report pre-existing illnesses medical and family histories, in addition to whether they exercise, smoke, drink or use drugs. Being such an important moment in the life insurance contract, the medical history must be completed through the Personal Health Declaration or DPS. In addition, interviews and medical examinations may also be requested.

professions and leisure

Some professions offer greater risk to the professional who performs them. This information will allow the insurer to offer the ideal product for the insured’s moment of life.

The form of leisure is also taken into account when calculating the value of life insurance, especially in cases of extreme sports. An important tip when hiring a plan is to answer the questionnaire as clearly as possible. If any information is omitted or not informed, it may cause problems when paying the indemnity.

Get some information now to make it easier when calculating the ideal life insurance value to meet your family’s needs.

What is the ideal life insurance value to support my family?

Learn how to calculate the value of life insurance so that, if the worst happens, the policy will meet your family’s needs.

In addition to not knowing how to calculate the value of life insurance, people, in general, also have no idea what the value of the policy would actually serve their family – which is quite common in view of the various possibilities of the market. 

To find out the value of life insurance that would be ideal for keeping your family protected, it is necessary to carry out a survey about your cost of living. Take some time and gather some information:

Evaluate income and expenses

Break down the current fixed expenses of all residents of the house: children’s school, car, bills, health plans, debts, home or car financing, etc.

In addition, list the average value of variable expenses, such as leisure food, among others. After the survey, add up the total and think about the number of years you would like to keep the family well-insured.

Example: A family formed by a couple with one child. The father, the insurance contractor, has a salary of R$8,000, and the mother, R$4,000. The son is already in college but will only be able to contribute to the expenses of the house in five years.

  • Total family income: BRL 12,000
  • The total family expenses are R$ 8 thousand. The father pays R$ 6 thousand and the mother R$ 2 thousand.

The calculation of the value of life insurance must take into account the time required for the child to complete his studies and start working. That is, five years are enough for the family to have the desired financial security. 

Evaluate the equity

List all assets (investments, house, car, valuables) and ask a lawyer or accountant to do an average calculation of the costs of an inventory, including the Cause Mortis and Donation Transmission Tax, different for each state, notary fees, and attorney’s fees, which are typically 6% of the estate.

Most policies usually offer funeral assistance. Therefore, cost does not need to be taken into account.

For example, the family mentioned above has their own apartment, valued at BRL 300,000, plus BRL 50,000 in investments. Add the ITCMD values ​​plus the legal costs, which would be BRL 17,500 (if considering the 5% of the total assets charged in RJ) and BRL 21,000, respectively.

Final account:

Add:

Expenses (R$ 8 thousand x 12 months x 5 years) = R$ 480 thousand

ITCMD = BRL 17.5 thousand

Lawyers = BRL 21 thousand

Total = BRL 518.5 thousand

 From this amount, subtract:

Leftover income (R$ 4 thousand x 12 months x 5 years) = R$ 240 thousand

Investments = BRL 50 thousand

Total = BRL 228.5 thousand. 

This life insurance amount is the minimum necessary to support and maintain the family’s standard of living for the next five years. Therefore, you need to pay a policy that at least covers that amount.

As you can see, taking out life insurance is very important for your financial security and that of your family. Therefore, it is worth taking the time to understand more about the subject and analyze the best protection solution for you. And never forget: it is essential to carefully read the contract, and all the coverages included in your plan and ask yourself if they are enough to maintain your standard of living and that of your family.

In case of other doubts about the value of life insurance, always consult a broker or an expert. In addition, also read about what to do after knowing the value of life insurance and hiring it!

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