HOW MUCH LIFE INSURANCE DO YOU NEED?
(Print worksheet for
your own information)
It’s a simple question with a complicated answer. What’s appropriate
for one family might be too much or too little for another. To determine how
much you need, you’ll have to review your current financial situation and try
to anticipate needs. Don’t be intimidated by this process; this step-by-step
guide will help. Remember: The goal is to have enough insurance so that if you
die, your beneficiaries could invest the benefit and maintain their current
lifestyle.
QUICK ANSWER: Multiply your income times seven (for families with two or
more college bound children; couples without children should multiply times
five). That figure probably will be adequate for many people.
FAMILY WORKSHEET
|
1.
How much
money would your family need each month to maintain its standard of
living? (Don’t include mortgage payments or other loans if the insurance
benefit would be used to pay off those balances.) Be sure to include
unusual expenses, such as care for a disabled parent or handicapped child.
(This is the hardest part. Honest.) |
$________ |
|
2.
Multiply
that amount by 12. |
x 12 |
|
3.
Subtract
the annual income your family can expect after you’re gone, including a
spouses’s income, money from trusts, rental property, etc. |
-
$________ |
|
ANNUAL NEED |
$________ |
|
4.
What
interest rate could your estate earn after taxes on a lump sum of cash?
(You can account for inflation by reducing that rate by a point or two.)
Divide your annual need (above) by your projected interest rate. If, for
example, you could get a net return of 6 percent, divide by .06. If 8
percent, divide by .08. |
-
$________ =________ |
|
5.
Now add
estate settlement costs such as taxes, probate and funeral expenses. To estimate: Use 5 percent of your net worth.
|
+________ =________ |
|
6.
Add any
outstanding loan balances not accounted for in No. 1 above, including a
mortgage or other loans that might be paid off with the death benefit. |
+________ =________ |
|
7.
Add amount
needed for survivors’ education expenses, in today’s dollars. |
+________ =________ |
|
8.
Subtract
amount of insurance you already have, as well as other liquid assets such
as CDs, stocks and bank accounts.
|
- ________ |
|
= AMOUNT OF INSURANCE NEEDED |
$________ |
Let us find the best plan to
fit your needs !