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:
Estimate your family's expenses that could be funded or paid off by life insurance in the case of your death:
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.
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.
Typically this includes the balances on all loans, credit cards, and lines of credit.
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:
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.
Estimate your family's sources of income:
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.
Includes bank accounts, money market accounts, mutual funds, CDs, bonds, stocks, and other assets.
Includes 401(k), Keoghs, pension, and profit sharing plans.
Typically the amount of take-home pay your spouse receives each month.
Review and adjust the typical settings before calculating your results:
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.
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.
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.
Average total expense for a public four-year in-state institution as of the 2013-14 school year. Source: The College Board.
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.
= Need For Additional Life Insurance
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Securities and advisory services offered through Cetera Advisors LLC, Member FINRA/SIPC, a broker/dealer and a Registered Investment Adviser. Ramsier Financial Services and Cetera Advisors LLC are separate companies