If you really love your family, you defintely need to consider this. There are two ways calculate your needed Life Insurance. The ‘Easy Way’ or the ‘Hard Way’
1. Easy way – Used for Income Continuance.
| Ages | Income Factor |
| <30 | 15 X Annual Income |
| 31-35 | 13 X Annual Income |
| 36-40 | 14 X Annual Income |
| 41-45 | 10 X Annual Income |
| 46-50 | 8 X Annual Income |
| 51-55 | 7 X Annual Income |
| 56-60 | 5 X Annual Income |
| >61 | 4 X Annual Income |
This is just a rough estimate for breadwinners to consder in getting life insurance. The income factor is derived from the number of years prior to your retirement, wherein you are no longer generating an active income.
2. Hard Way – For us to do this easier we will divide this into segments, then add them all up
A. Income Continuance – To sustain the lifestyle of your dependencies on the event of your loss
a. Current Monthly Contribution to your family or dependencies – For this example we will use the amount 20,000
b. Interest Rate – This is the interest rate of the investment instrument used when the Death Benefit has been received by the beneficiaries. Let us assume it is only placed on the bank earning an interest of 2.5% p.a.
Annual Family Expense ÷ Interest Rate
20,000 x 12 ÷.025 = 9.6 M
B. Funeral Cost – Average funeral cost is around 350K. You don’t believe me? You may refer on this link for the breakdown: http://funeralinformation.blogspot.com/2011_01_01_archive.html
C. Estate Tax – This is the tax on the right of the deceased person to transmit his/her estate/assets to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition.
| Over | But Not Over | The tax shall be | plus | Of the excess over |
| | P 200,00.00 | Exempt | | |
| P200,000.00 | 500,000.00 | 0 | 5% | P 200,000.00 |
| 500,000.00 | 2,000,000.00 | P 15,000.00 | 8% | 500,000.00 |
| 2,000,000.00 | 5,000,000.00 | 135,000.00 | 11% | 2,000,000.00 |
| 5,000,000.00 | 10,000,000.00 | 465,000.00 | 15% | 5,000,000.00 |
| 10,000,000.00 | | 1,215,000.00 | 20% | 10,000,000.00 |
i.e. I have total assets amounting to 2.5M.
Tax = 135,000 + .11 × 500,000 = 190,000
This means that before the 2.5M peso worth of assets be transferred to my lawful heirs on the event of my loss, they need to pay a total tax of 190,000 first.
One way of preventing this Estate Tax is to transfer the assets to rightful heirs before the death of the owner. Of course, this is very difficult to predict.
D. Other Liabities – i.e. Mortgage Redemption, Personal Loans
