The lump sum that replaces an income for a set number of years.
Lump sum needed
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Annual need
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Total paid over term
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Turning a salary into a single number
If you support a family, the hardest question in any insurance conversation is how much cover replaces your income. A salary is a stream that arrives month after month, but a life insurance payout is a lump sum that lands once. This calculator bridges the two. It asks what annual income your dependents would need if you were gone, then works out the single amount that, invested sensibly, could pay that income out year after year for as long as you specify. The answer is the present value of those future payments, which is almost always far smaller than simply multiplying the annual need by the number of years, because the money keeps earning a return while it is being drawn down.
Two judgements drive the result. The first is how much of your income actually needs replacing. Few families need 100 percent, because some spending was tied to you personally, so a replacement share of 60 to 80 percent is common. The second is the return you assume the lump sum can earn while it is invested, which sets how hard the money works before each withdrawal.
Sizing the fund for a PHP 600,000 income
Run the defaults: a PHP 600,000 annual income, a 70 percent replacement share, an expected return of 5 percent a year, and a 15-year horizon. The replacement share trims the income to be covered to PHP 420,000 a year. The calculator then finds the lump sum whose present value funds PHP 420,000 every year for 15 years at 5 percent, using the present value of an ordinary annuity. That lump sum is about PHP 4,359,456.
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Notice the gap. Paying PHP 420,000 a year for 15 years adds up to PHP 6.3 million if you just stack the payments, yet you only need about PHP 4.36 million up front. The difference of roughly PHP 1.94 million is the work the 5 percent return does on your behalf while the fund is drawn down. The chart in the results panel contrasts the two so you can see how much the investment return reduces the cover you have to buy.
Reading the result as one layer of a wider plan
The figure this tool returns is the capital that needs to exist on the day income stops, so subtract what is already in place before you buy a policy. Existing savings, retirement balances, and any group life cover from your employer all count toward the target and shrink the new cover you must arrange. So does the SSS death benefit: a member's qualified survivors may receive a monthly pension or a lump sum that sits on top of the fund modelled here. Treat it as a reduction in the gap, and confirm your entitlement and contribution record with the SSS rather than guessing the amount.
A note on inflation and the horizon
The horizon you choose should reflect how long your dependents truly rely on your income, which is often until the youngest child finishes school or a spouse can support themselves. Bear in mind that the model holds the annual need flat in peso terms, so it does not build in rising prices over those years. If you want the income to keep pace with the cost of living, either lengthen the horizon, lift the replacement share, or treat the result as a floor and round it up. A practical tip is to set the expected return modestly, around the level of a balanced portfolio, rather than reaching for an optimistic figure that would understate the cover you need.
Questions people ask
Why not just buy cover equal to ten times my salary?
The rule of thumb that says ten times income is a quick shortcut, but it ignores how long your family actually needs support, how much of your income was personal, and the return the payout can earn. This calculator replaces that guess with a number tied to your own figures, which can come out higher or lower than ten times salary depending on your horizon and assumed return. Use the rule for a sanity check, not as the final answer.
Should I count my spouse's income in the replacement share?
If your spouse earns and would keep working, you only need to replace the share of household income that you provide, so a lower replacement percentage is reasonable. If your income is the sole or main source, lean toward a higher share. The replacement field is where you make that call, and it is worth testing a couple of values to see how sensitive the lump sum is to the assumption.
What happens to the fund after the chosen number of years?
By design, the lump sum is drawn down to zero over the horizon you set, because it assumes your dependents only need replacement income for that period. If you would rather the capital stay intact, perhaps to leave an inheritance, you would need a larger sum that lives off the return alone. In that case, lengthen the horizon substantially or treat this output as the minimum and add a margin.