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How much life insurance protection do you need?


Buying a car insurance is simple. If your car is worth 1M, you need a 1M of coverage to cover the car in the event of a total loss. Same with your house, if the value of the house is 5M, then you'll need a 5M of coverage in case of disaster. However, when it comes to life insurance, people can't apply the same valuation because they don't know how to calculate how much they need.
Compute your financial needs
Compute your financial needs

The simple formula to determine one's life protection needs is called the DIME method. DIME stands for debt, income, mortgage and education.
Computing life insurance needs using the DIME Method
(Source: IMG Advance Training)
In case something happens to the husband (or wife) prematurely, having 6M (7.2M) protection, they have 200K to pay off their debts, pay for the house mortgage and keep the house, with 2.4M income replacement, the family can still survive with 20,000 monthly income (30,000 monthly in the case of the wife assuming she earns higher) for 10 years and 3M for their 3 kids to go to college (assuming 1child = 1M in college fund)

With the DIME method, people will know how to compute for their insurance needs. However, they may not like what they will see because they will realize that most people don't have enough protection for their family. 

Most Filipinos are under-insured. Worst case, none at all. Because a lot still are ignorant of the purpose of life protection and how to properly buy one. People are buying the wrong products and not meeting their financial needs. People may say, "I already have life insurance!" but the real question is do they have enough? 
Know how to compute your insurance needs
How would you feel if you have a 3M SUV and went into a total wreck and when you file a claim, the coverage you get is just enough for a 700K sedan? It is the same thing with life insurance. We can not replace our lives but we can replace our income that provides for our family. If we are providing 30K monthly worth of income to our family, how would they feel if they only receive 500K in case something happens to us? It may provide temporary security but after a year, that amount will be depleted and our family may have a harsh life ahead. 

Trivia: the spouse of a person who dies with enough life protection cries differently than the spouse of a person who has none. The latter is truly not a very lovely scene.

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