Problem
Once people accept that insurance is important, a new confusion usually appears.
"How much coverage should I take?"
Some people buy the minimum possible coverage to keep premiums low. Others buy very large coverage amounts because they are told "more is always better." Both approaches often miss the real goal of insurance.
- Too little coverage fails during emergencies.
- Too much coverage increases cost without adding meaningful benefit.
Unlike daily expenses, insurance coverage cannot be guessed or chosen emotionally. It needs a simple, logical method.
This confusion is especially common with life insurance, where numbers can feel abstract and intimidating. People struggle to connect coverage amounts with real life.
This chapter introduces a clear way to think about coverage—one that focuses on replacement, not perfection, and adequacy, not excess.
Question
How do you decide the right amount of insurance coverage without guessing or copying others?
More specifically: How can you calculate coverage based on real responsibilities and income, instead of fear or sales advice?
The answer lies in understanding your Human Life Value.
Concept
Insurance coverage should reflect financial responsibility, not personal worth.
What is Human Life Value
Human Life Value is a simple concept.
It represents:
- The economic value of your future income
- The financial support you provide to others
- The money required to replace that support if you are not around
In simple terms: It answers the question: If my income stops today, how much money would my dependents need to stay financially stable?
Why income replacement matters
When someone passes away:
- Expenses do not disappear
- Dependents still need food, housing, education, and healthcare
- Long-term goals still exist
Life insurance exists to replace lost income, not to create surplus wealth.
Key components of coverage calculation
Coverage estimation usually involves four basic elements:
Annual income contribution How much money you contribute toward family expenses every year.
Number of years of dependency How long dependents will rely on your income.
Existing savings and assets Money that can already support dependents.
Outstanding liabilities Loans or obligations that would remain.
Coverage should aim to:
- Replace income for a reasonable period
- Clear major liabilities
- Reduce financial disruption
It does not need to cover every future luxury or scenario.
Walkthrough
Let's walk through a simple example.
Person A earns regularly and supports his family.
Step 1: Estimate annual contribution
Person A earns money, but not all of it supports dependents. Some is for personal expenses.
- Assume: Annual income contribution to family is a fixed amount.
Step 2: Estimate dependency period
Person A expects:
- Parents to need support for a certain number of years
- Children to be dependent until education is complete
This gives a rough dependency duration.
Step 3: Calculate total income replacement
Multiply: Annual contribution × Years of dependency
This gives a base coverage number.
Step 4: Adjust for existing resources
- Subtract: Savings, Investments, Employer benefits
- Add: Outstanding loans or obligations
The result is a reasonable coverage estimate, not a perfect one.
This method is not about precision. It is about direction and adequacy.
Impact
Choosing the right coverage has meaningful consequences.
If coverage is too low
- Dependents struggle financially
- Savings run out quickly
- Long-term goals are compromised
If coverage is excessive
- Premiums strain monthly budgets
- Less money available for investing
- Complexity increases without benefit
Right-sized coverage:
- Protects essentials
- Keeps premiums manageable
- Fits real life stages
Coverage should change as life changes. It is not a one-time decision.
Let's Do It
Use this simple framework:
- Identify who depends on your income.
- Estimate how long they would need support.
- Focus on income replacement, not lump-sum fantasies.
- Revisit coverage after major life changes.
Do not aim for perfection. Aim for sufficient protection.
Insurance works best when it is reasonable, reviewed, and understood.
Takeaways
- Insurance coverage should replace income, not emotions.
- Human Life Value connects coverage to real responsibility.
- Adequacy matters more than maximum coverage.
- Coverage should evolve with life stages.
- Simple logic beats complex calculations.
What's Next
Life and health insurance protect during uncertainty. But protection is incomplete without planning for what happens after.
In the next chapter, we will explore:
- What estate planning means
- Why nominations and wills matter
- How to reduce chaos for loved ones