Life Insurance

Calculating How Much Life Insurance You Need: It’s Personal

There are a slew of life insurance calculators on the web. Not surprisingly, they all give you different answers to how much life insurance you need. These life insurance calculators can be a good starting point to help you figure out how much life insurance you should be buying, but really it is ridiculous to rely on a calculator for these matters. No matter how many factors a life insurance calculator considers, it cannot consider the personal aspects of your death and the people who will survive you.

 

The first thing you must consider when determining how much life insurance you need is how you want your family to live after you are gone. Would you like to leave your family suddenly rich? Do you want your family to continue on exactly as they were before your death? Would your family be alright even if you didn’t have any life insurance?

 

For most people, life insurance is about providing security for families after you are gone – not turning family members into overnight millionaires with your death. If this is the case, then your life insurance must be able to at least cover the costs these four areas:

Funeral Expenses: depending on the type of funeral you or your family would like, costs can range from a few thousand to over $20,000. If you haven’t yet talked about funeral plans with your loved ones, then it is time to do so before shopping for life insurance.

Debts: You must calculate all of your debts in order to figure out how much life insurance you need. By covering the debt amount, even in the case of low-interest mortgage rates, you can insure your family will not be forced to sell property or move.

Education for children: If you are planning on sending your children to college, then the expenses can be great. You can insure that your children will get the opportunity to study by calculating the college costs into your life insurance policy. Since the proceeds of life insurance are rising on about the same rate as college tuition costs, you don’t have to change the figures to account for inflation.

Income replacement: When figuring out how much life insurance you need, you do not have to directly calculate your income. That is because you have already calculated for debts and expenses. Instead, calculate half of the amount you make before taxes. Then, divide this amount by 5% (the amount that life insurance benefits are likely to earn).
Calculating How Much Life Insurance You Need: It’s Personal

After you have calculated these basic figures for how much life insurance you need, you should adjust the figures to reflect your personal needs and desires. If you don’t have any retirement plan, then you will likely want to increase the life insurance policy. If you have a disabled child who will need care when you are gone, then you would also want to increase the amount. If your spouse has a large salary, then you could reduce the life insurance figures accordingly.

 

Don’t worry when these figures end up in the millions. When you purchase term life insurance policies, there is not much of a price difference between figures like $1 million and $1.5 million.