Chances are you need more life insurance than you think. While asking friends and family may be a start, it might not give you an accurate idea of how much life insurance you really need.
At RiskQuoter, we’ll help you determine the right amount of life insurance to meet your needs.
Factors That Determine Life Insurance Needs
Most people underestimate their insurance needs, as they don’t consider all factors. This article covers the factors to consider and provides life insurance calculators for your use:
- Income replacement
- Mortgages, debts and other obligations
- Education funding
- Final expenses and cash for immediate needs
- Retirement planning
- Surviving partner’s work situation
- How much life insurance do you need? [Life Insurance Calculators]
Forget the “rule of thumb for life insurance” method. That is a dated concept that doesn’t work.
How much life insurance coverage does Suze Orman recommend? Visit her site, and you’ll see that the numbers work out to roughly 25x income.
How much does financial talk show host Dave Ramsey recommend? Dave’s website shows that he typically recommends 10x income.
While general guidelines give you a starting point, don’t accept a blanket recommendation for coverage amounts.
As you consider the amount of death benefit you need, you are also going to want to consider this article that will help you decide on what type of life insurance you need.
Use these life insurance planning tools to help you accurately determine your needs, and then work with an independent life insurance agent who will help you find the best available life insurance options that meet your needs.
Income Replacement
How much of your annual income needs to be replaced if you die?
The amount of life insurance you seek has to make sense to the insurance company.
If you need more insurance than the guidelines indicate, most insurance companies are receptive to it as long as the basis for your life insurance makes sense to the company.
In some situations, it may be necessary to obtain life policies from multiple companies to cover higher needs requirements.
You may also want to look at social security survivor benefits to see how much your family would receive in the event of your death.
Mortgages, Debts and Other Obligations
As part of your life insurance planning, it’s important to consider any debts you have as part of planning.
Mortgage balances, car loans, student loans, weddings, and other debts should be considered.
If you have a 30-year mortgage, a 30-year term life insurance policy may be perfect to meet your needs.
You may want to consider a 20-year term life insurance policy if the 30-year pricing is too expensive.
When you are considering income replacement, you may think that replacing your income would take care of these mortgages and other debts.
That is not necessarily the case.
If you’re dead, your family is now working with a lump sum of money that has to be managed.
Some people want to leave their family with a lump-sum of money and clear their debts when they die, while other people just want their insurance to cover the loss of their income.
There’s no wrong answer…I would just say that unexpected things happen in life, as we all know, and life insurance planning is not an exact science.
A recent improvement in the market is a 40 year term life insurance policy that has the potential to cover you until retirement age.
Education Funding
If you have kids, you’re already thinking about those future education bills.
Educational expenses are astronomical and there’s no end in sight.
Future educational plans for your children may include college, technical schools, grad school, etc.
How much will a college education cost in 2028?
Check out this college cost calculator from CollegeBoard, and this technical school cost guide from Real Work Matters.
Final Expenses and Cash for Immediate Needs
When you die, a lot of unexpected expenses arise.
Unexpected costs may come from having to fly kids or family members home, hosting people for days, and paying for a funeral.
Funerals are expensive and this guide from the National Funeral Directors Association is helpful.
In some instances, it may be necessary to consider potential estate taxes as part of your life insurance planning.
Retirement Planning
As part of life insurance planning, it is important not to overlook your surviving partner’s retirement.
You’re probably currently contributing to a 401k or other retirement plan through work, right?
What happens when you die?
If the surviving partner would be dependent on your retirement plan contributions, you need to consider it with your life insurance planning.
Surviving Partner’s Work Situation
Things change when your partner dies.
If your partner dies, you may want to take some extended time off from work.
As part of life insurance planning, you may want to factor this into your needs-analysis.
If one of you is a stay-at-home partner, the survivor needs to consider how their own work situation may change as a result of the stay-at-home partner’s death.
Will you stop working and stay home to raise the kids? Maybe you’ll reduce your hours at work.
It also raises another point to consider regarding stay-at-home partners.
Life insurers recognize the value that a stay-at-home partner brings to a family, even if that partner doesn’t have an income. Most insurers allow stay-at-home partners to obtain 50-100% of the amount of life insurance that their partner has.
How much life insurance do you need? [Life Insurance Calculators]
Now that you have greater insight into the factors to consider, how do you determine how much life insurance you need?
That’s where these great life calculators will help you.
One of the best needs-calculators we found came from the nonprofit organization LIFE Happens
We like this calculator the best because it factors in all of the above. If one of the factors doesn’t apply to your situation, you can skip it.
After we discovered this calculator, we started looking for others that may provide you with a comparison.
Surprisingly, not every life insurance company provides life insurance calculators.
The companies that do provide ways to determine your life insurance needs, have done so with these interactive pdf documents that allow you to input information and print off the results.
Protective Life has an interactive life insurance calculator 5 Step Life Insurance Estimator to help you calculate your life insurance needs.
Prudential has an interactive life insurance calculator Life Insurance Estimator allows you to input values and print off an estimate for your life insurance planning needs.
American General’s Life Insurance Calculations worksheet allows you to input values and calculates life insurance needs on its worksheet.
Banner Life offers an easy to follow life insurance needs worksheet for you to use.
Keep in mind that these calculators give estimates only. It’s good to see various companies calculate needs. The calculations are valuable, even if we apply them to a different company.
Something else to keep in mind is if you have health issues. Certain health issues may add substantially to your cost.
Health conditions such as angina, bipolar, thyroid diseases, etc. may increase rates for you.
We’ll help you balance your life insurance needs with your budget to ensure that you have the best coverage possible for your situation.
Get Life Insurance Quotes
Now that you have an idea about your life insurance needs, please submit your request for quotes.
A good life insurance agent is helpful when it comes to finding the right life insurance company based on your health and life insurance needs.
You may benefit from buying more than one life insurance policy by using the concept of laddering life insurance, a.k.a. staggering life insurance coverage.
Let us help you get the right amount of life insurance at the most competitive rates. We’ll help you put a plan together that protects your family.
Request a free, no pressure, no-obligation life insurance quote today.
