The number one reason people give for not buying life insurance is that they think it's too expensive, but 8 in 10 of those surveyed overestimated the cost of life insurance by more than twice what it actually costs! (according to the 2015 Life Happens Insurance Barometer Study).
Why is that? Why are we so reluctant to buy life insurance for our families? And why is there such a common misconception of its actual cost?
It could be that many of us just don't know how much life insurance we need, and assume it's out of our budget. If the worst happens, that might be a costly gap.
Thankfully, there are tools to help us calculate our needs, and determine just how much life insurance we may want. One of those tools to help us manage that financial gap in our lives is right here.
Life Insurance Calculator
When you ask, "How much life insurance do I need?" what you're really wondering is, "how much money will my family need after I'm gone?"
That may seem like a daunting question to answer, with tons of variables to consider. To clear things up, let's focus on two questions:
- How much will they need to meet immediate obligations (things like outstanding debts, mortgage payments, college costs, grocery bills, etc.)?
- How much will they need to sustain their lifestyle (sustained cash flow)?
Step 1: Estimating your family's expenses
The first step in determining your life insurance needs with the calculator is to help estimate your family's expenses after your passing. Here you'll enter:
- An estimate of final expenses (usually about 4% of your estate value. A default value has been entered if you don’t know the value of your estate).
- How much additional outstanding debt you have.
- How much is left on your mortgage.
- How many of your children still need money for college.
Step 2: Estimating the total annual income your family would need
Next, the life insurance calculator will help you think about how much your family would need to maintain their lifestyle after your passing. You'll need:
- Your total annual income.
- How many years your family would need this income.
- Your total savings and investments (outside of retirement savings).
- Your current retirement savings.
- The value of any life insurance policy you currently have, including employer-provided policies.
The calculator also takes into account your spouse's contributions to the family income, if any. Here you'll enter:
- Your spouse's annual income.
- Your spouse's tax rate. (For most folks, this is about 25%2).
- How many more years your spouse plans to work.
For a clearer picture of how much life insurance you may actually need, and to help prevent any gaps in your coverage, the calculator also takes into account:
- Estimated inflation rate.
- After-tax net investment yield.
Step 5: How much Life insurance you may want
Finally, the calculator takes into account all these variables and displays an amount of life insurance that may work for your needs.
If you don't have life insurance, or maybe don't have enough Life insurance, it's important to recognize that gap, and speak to us today.
Contact me (firstname.lastname@example.org) at 858-487-9200 for a free analysis. My team and I will show you how to possibly prevent financial problems before they become life-altering issues.