The amount of life insurance you need may depend on how much your family will need to cover future expenses in the event of your death. You should consider your family’s comprehensive future expenses and income, including major life events.
Based on these determinations, and the length and type of the policy of your choosing, this life insurance calculator will present results that will help you plan for their future. Your current assets are also important to consider, along with any potential for those assets to increase in value. Follow these easy steps to see just How Much Life Insurance You Really Need: Life Insurance Calculator
Something to Consider
It’s Good to #1: Multiply your income by 10
“It’s not a bad rule, but based on our economy today and interest rates, it’s an outdated rule,” says Marvin Feldman, president and CEO of insurance industry group Life Happens.
The “10 X Income” rule doesn’t take a detailed look at your family’s needs, nor does it take into account your savings or existing life insurance policies. And it doesn’t provide a coverage amount for stay-at-home parents.
Both parents should be insured, Feldman says. That’s because the value provided by the stay-at-home parent needs to be replaced if he or she dies. At a bare minimum, the remaining parent would have to pay someone to provide the services, such as child care, that the stay-at-home parent provided for free.
And #2: Buy 10 X Income + $100,000 per child for college
Education expenses are an important component of your life insurance calculation if you have kids. This formula adds another layer to the “10 times income” rule, but it still doesn’t take a deep look at all of your family’s needs, assets or any life insurance coverage already in place.
Finally, #3: The Dept-Mortgage-Income-Education model
Debt and final expenses: Add up your debts, other than your mortgage, plus an estimate of your funeral expenses.
Mortgage: Calculate the amount you need to pay off your mortgage.
Income: Decide for how many years your family would need support, and multiply your annual income by that number. The multiplier might be the number of years before your youngest child graduates from high school. Use this calculator to compute your income replacement needs:
Education: Estimate the cost of sending your kids to college.
How to Find Your Best Number
Calculate obligations: Add your annual salary (times the number of years that you want to replace income) + your mortgage balance + your other debts + future needs such as college and funeral costs. If you’re a stay-at-home parent, include the cost to replace the services that you provide, such as child care.
From that, subtract liquid assets such as: savings + existing college funds + current life insurance.