We have written about how to calculate how much life cover you should have. This article answers an equally important question for people who already hold several policies: is what you have enough? Here is a step-by-step self-audit — one hour and you will know.
Step 1: Add up all the cover you actually have
Gather every policy in one place, including the ones usually forgotten: the group insurance at work, the cover attached to your mortgage, the accident cover that came with a card or a membership. Note only the life sum insured of each and add them up. That figure is the total cover your family would actually receive. Many people find it is far less — or far more — than they thought. This step alone is worth the time.
Step 2: Calculate the obligations that would fall on the people behind you
The other side of the equation is the real obligation. Add three main amounts: one, all outstanding debts; two, annual family expenses multiplied by the number of years you want them to have to adjust; three, the goals you want to continue providing for, such as a child's education to graduation. Then subtract the liquid assets you have. The result is the net need. The detailed method is in our article on how much life cover you need.
Step 3: Compare the two figures and read the result
Take the total cover (step 1) and subtract the net need (step 2).
- Negative = there's a gap (underinsured). This is the most common group, particularly people who bought insurance once long ago while life kept adding obligations — a house, children, parents to care for.
- Strongly positive = possibly overinsured. This happens to people who bought several overlapping policies when invited to, without ever adding up the total. That surplus premium could be working harder elsewhere.
- Close to zero = about right. Congratulations — but still set an annual review.
Step 4: Check the quality, not just the quantity
An adequate sum is not the end. Check three more things. One: the cover period — when does your largest slice of cover expire? If group insurance is the main sum insured, then the cover is tied to the job, not to you. Two: the beneficiaries — is every policy still in the name you intend, particularly if your relationship or family has changed? Three: the other kinds of cover — life may be adequate, but are health, disability and critical illness complete? Risk does not come in only one form.
Signals that it's time to reassess immediately
Marriage, a child, buying a house, changing jobs (group cover changes), income changing by more than a quarter, divorce, or gaining a dependant. These events change both sides of the equation at once — don't wait for the annual review.
In short
Assessing whether your life cover is adequate is a simple subtraction between what you have and what you carry. Its power lies in actually doing it. Set aside an hour this weekend for all four steps and you will know your own protection position better than you ever have. If you get stuck on a step or would like help adding up the totals, message us on LINE — no charge.
This article was inspired by material from the Thai Financial Planners Association (TFPA) and has been entirely rewritten.