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How do I know how much life insurance I need?
How much Life Insurance do you need.
There are multiple methods of answering this question I prefer the "need analysis" method. Most life insurance agents or financial planners will conduct a needs analysis for free.
Basically, Add up all of the liabilities you have that you want to pay have paid off upon your death. Then add to that number a cost of burial ($8k to $15K), the cost of estate administration (5% of total net worth), a emergency fund for your survivor ($25k or more), an amount for your children's college fund (if you have minor children), and lastly an amount of money for your survivor to live on.
Once you have totaled all of the above subtract from that number the amount of assets you have that will be available to pay these items at your death. This can be other life insurance, cash in the bank, IRA's, Retirement funds, Stock Portfolios, Real Estate, but only items you want your executor to liquidate. If you want to pass it on to your survivors then do not subtract it from the liabilities.
Finally, the amount of insurance you need is the difference between the two numbers. Always round it up to the nearest quarter of a million.
If your estate is worth more than $2 million be sure to consider the costs of estate taxes. This will require some more indepth planning with an estate/financial planner and attorney.
There are multiple methods of answering this question I prefer the "need analysis" method. Most life insurance agents or financial planners will conduct a needs analysis for free.
Basically, Add up all of the liabilities you have that you want to pay have paid off upon your death. Then add to that number a cost of burial ($8k to $15K), the cost of estate administration (5% of total net worth), a emergency fund for your survivor ($25k or more), an amount for your children's college fund (if you have minor children), and lastly an amount of money for your survivor to live on.
Once you have totaled all of the above subtract from that number the amount of assets you have that will be available to pay these items at your death. This can be other life insurance, cash in the bank, IRA's, Retirement funds, Stock Portfolios, Real Estate, but only items you want your executor to liquidate. If you want to pass it on to your survivors then do not subtract it from the liabilities.
Finally, the amount of insurance you need is the difference between the two numbers. Always round it up to the nearest quarter of a million.
If your estate is worth more than $2 million be sure to consider the costs of estate taxes. This will require some more indepth planning with an estate/financial planner and attorney.
A good rule of thumb for how much life insurance you need
Many insurance companies will allow up to 20x your annual income. Depending on your geographic area 10x to 15x should be a good rule of thumb.
Many insurance companies will allow up to 20x your annual income. Depending on your geographic area 10x to 15x should be a good rule of thumb.
President - All Quotes Insurance Services
July 13, 2009
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How much are you worth? What is your human life value?
In order to know how much is needed you would have to know what the future holds. Your ablility to purchase more insurance in the future, should you want to, is not guaranteed. How much would you purchase if you knew that you had one month to live? While premium's are always an issue, an experienced advisor should be able to help you finds ways to afford the coverage you and your family would want to have.
In order to know how much is needed you would have to know what the future holds. Your ablility to purchase more insurance in the future, should you want to, is not guaranteed. How much would you purchase if you knew that you had one month to live? While premium's are always an issue, an experienced advisor should be able to help you finds ways to afford the coverage you and your family would want to have.
Managing Partner - Elite Financial Partners
August 29, 2009
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Life Insurance is a "Want" Product, not a "Need"
Everyone is different. Make sure your agent takes the time to discuss the fact that life insurance is a "Want" product, not a "Need" product. In other words, do not rely on a simple formula. What an insurance company will underwrite you for, and what you want may be completely different figures. You posted your question a year ago: I hope this helps. Dr. Josh.
Everyone is different. Make sure your agent takes the time to discuss the fact that life insurance is a "Want" product, not a "Need" product. In other words, do not rely on a simple formula. What an insurance company will underwrite you for, and what you want may be completely different figures. You posted your question a year ago: I hope this helps. Dr. Josh.
INVESTMENT COACH - INSTITUTE FOR HEALTHY INVESTING
October 7, 2009
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4 replies have been posted for this topic.
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