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When purchasing life insurance, the question really isn’t how much you need, but how much capital your family will need at the time of your death, which depends on two variables:

  • Expenses. How much will be needed at death to meet immediate obligations? This amount takes into account all final expenses: uncovered medical bills, funeral and estate-settling costs, outstanding debts, mortgage balance, and college costs to name a few.
  • Income. How much future income is needed to sustain the household? This is the number you’ll arrive at after calculating the “present value” of cash-flow streams your family will need after your death.

Estimate your family's expenses that could be funded or paid off by life insurance in the case of your death:

Funeral & Estate Costs

Typically the greater of $15,000 or 4% of your estate. This would include uncovered medical costs, funeral expenses, and final estate settlement costs. Note: If your estate is over $1,500,000 your final expenses may be much higher due to federal and state estate or inheritance taxes.

Outstanding Mortgage

Whether or not your survivors would use life insurance to pay off the mortgage right away, creating a fund to cover mortgage payments makes sense.

Outstanding Debts (other than mortgage)

Typically this includes the balances on all loans, credit cards, and lines of credit.

How many children require college funding

Total projected college costs (tuition plus all other costs such as room and board, books, etc.), less current funds in the child’s name. The default tuition amounts being used are the averages for a 4-year education at a public or private school as provided by The College Board and can be viewed and modified in the calculator Settings.

Estimate your family's recurring income needs if you died today:

Monthly Income Need

The total amount your family needs, before taxes, to maintain their current standard of living, typically 60%-75% of total income. Families with higher incomes typically fall into the lower end of that range.

How Many Years Should Income Be Provided

Estimate your family's sources of income:

Your Current Amount of Life Insurance

Includes individual policies, group term coverage available through work, and any other life insurance on your life payable to your family or for the benefit of your family. Do not include accidental death insurance or “double indemnity” insurance.

Family's Current Savings & Investments

Includes bank accounts, money market accounts, mutual funds, CDs, bonds, stocks, and other assets.

Your Current Retirement Savings

Includes 401(k), Keoghs, pension, and profit sharing plans.

Monthly After-Tax Income From Spouse

Typically the amount of take-home pay your spouse receives each month.

Years Spouse's Income Will Continue

Review and adjust the typical settings before calculating your results:

Inflation Rate

This is the rate at which we expect the prices of the things we buy to increase each year. The primary measurement for inflation is the Consumer Price Index, or CPI. 3% is commonly used to model life insurance and financial planning needs.

College Inflation

This is the rate at which we expect the cost of college to increase each year. 5% is commonly used to model life insurance and financial planning needs.

Assumed Rate of Return (on savings)

This is the rate of return you expect to earn across all of your financial assets which include: bank accounts, money market accounts, mutual funds, CDs, bonds, stocks, 401(k), Keoghs, pension, profit sharing plans, and other assets.

4-Year Public College Expense

Average total expense for a public four-year in-state institution as of the 2013-14 school year. Source: The College Board.

4-Year Private College Expense

Average total expense for a private nonprofit four-year institution as of the 2013-14 school year. Source: The College Board.

Your need for life insurance:

Should you die, the financial impact on your dependents is the loss of your income as well as the immediate expenses associated with your death. The death benefit offered through life insurance serves as replacement income for a period of time to help your family build a more financially secure future.

This estimated life insurance calculation is only intended to give you an overview of your insurance needs. For a comprehensive analysis, you should consider meeting with a qualified, licensed insurance professional.

Quick Summary

Lump Sum Expenses
Final Expenses
$0
Outstanding Mortgage
$0
Outstanding Debt
$0
College Funding
$0
Total Lump Sum Needs
$0
Family Income Needs
Annual Income Need
$0
Years to Provide Income
0
Present Value Calculations
Lump Sum Needs
$0
+ Income Needs
$0
= Total Needed at Death
$0
− Current Savings
$0
− Current Life Insurance
$0
− Other Income
$0

= Need For Additional Life Insurance