# Insurance Needs Calculator

This calculator helps you figure the total insurance coverage you need, and whether you’re adequately insured.

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# Results

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### Assumptions

#### Life insurance calculation

The total sum to cover your total monthly expenses excluding your personal expenses for 10 years or by the period you have indicated. If you have dependents, you may indicate a longer period you wish to provide for income replacement plus the education fund required.

Total outstanding loans and total savings and investments will be taken into account.

#### Disability calculation

The sum to cover 10 years of annual total expenses and total outstanding debt in the event of disability.

#### Critical illness calculation

The sum to cover 5 years your income in the event of critical illness.

#### Early critical illness calculation

The sum to cover 2 years of your income in the event of critical illness.

### When do you need to buy insurance?

Insurance contracts provide you with a sum of money in the event of an unfortunate situation, in exchange for smaller sums paid before it occurs, called premiums.

But how do you know when you should get insured or if itâ€™s just a waste of your money?

#### Figure out the cost of premiums vs your cost of risk

The price to pay for the insurance premiums must justify the risk that you are eliminating from your life. We buy insurance to cover ourselves from potentially large medical bills.

#### Weigh the opportunity cost of the sum

Assume you have that \$500,000 lying around and you would be able to pay for the medical bills with that liquid cash. Since such medical emergencies are unforeseen and sudden, you canâ€™t invest it into a longer term investment vehicle that could earn you higher returns and will have to keep it liquid in your bank account.

Then the question is, would you want to keep it highly liquid for such sudden unforeseen bills and earn little to no interest? The savings account interest rates could be as low as 0.05%.

Or would you prefer to have it invested in a low risk investment vehicle that earns 3% per year, while you pay an insurance premium of \$600 per year (0.12%), and have the money earn an additional 2.88% interest?

#### Consider the size of the risk

Decide if your risk factor is one you can personally take on.

For instance, some mobile phone insurance policies cover your device up to \$1,000. But the benefit of the coverage also depletes as the phone is closer to its average two-year lifespan. For a premium of about \$120, the cost is 12% and seems rather high in comparison to 0.12% for the health insurance.

Itâ€™s all about understanding how big a risk is to you and whether you are willing to pay to be covered for that risk.