Life Insurance CalculatorKnow the Gaps
It’s shocking to know that about 85% of consumers believe life insurance is necessary but about 40% of consumers have no life insurance. The number one reason people give for not buying life insurance is that it’s too expensive, yet 8 in 10 of those surveyed overestimated the cost of life insurance by more than 2 times what it actually costs! (According to LIMRA's 2013 and 2015 Insurance Barometer Studies).
Why is that? Why are we so reluctant to buy life insurance for our families?
And why is there such a sweeping misconception of its actual cost?
Could it be that most of us just don’t know how much life insurance we need, and assume it’s out of our price range? Could we be carrying too much, or not enough life insurance? If the worst happens, that might be a costly gap.
Thankfully, there are tools out there to help us calculate our needs, and determine just how much life insurance we may want. Once more, one of those tools to help us fill that gap in our lives is right here:
When you ask “how much life insurance do I need?” understand that you’re really wondering “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:
1. How much will they need to meet immediate obligations (things like outstanding debts, mortgage payments, college costs, grocery bills, etc.)?
2. How much will they need to sustain their lifestyle (sustained cash flow)?
This Life Insurance Needs Calculator2 helps walk you through the process of answering these questions, to help fill that potential gap in your coverage.
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:
- How much is left on your mortgage.
- How much additional outstanding debt you have.
- An estimate of final expenses (usually about 4% of your estate value).
- 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.
- 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.
- How many years your family would need this income.
Step 3: Including income provided by your spouse
The calculator also takes into account your spouse’s contributions to the family income. Here you’ll enter:
- Your spouse’s annual income.
- Your spouse’s tax rate. (For most folks, this is about 25%3)
- How many more years does your spouse plan to work.
Step 4: Other variables
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 next 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.
1 Life insurance, annuities and accidental death insurance issued by Farmers New World Life Insurance Company, 3003 77th Ave. SE, Mercer Island, WA 98040.
2 This calculator is created and maintained by Life Happens at Life Happens.org. Access to this calculator is provided as a convenience to you. Farmers Group, Inc., its parents, subsidiaries, affiliates, including Farmers New World Life Insurance Company and Farmers Financial Solutions, LLC, and their respective officers, directors, employers, agents and representatives, shall not be responsible for your use, non-use or reliance upon these calculators, or the accuracy of your entries or records made by you. Entry and storage of any and all data is solely your responsibility. We encourage you to always maintain a duplicate copy of all your records.
As with other helpful tools, the information provided by this calculator is for illustrative purposes only and is not intended to offer any tax, legal, or financial advice. It is always a good idea to consult the appropriate professionals for advice specific to your situation.
3 IRS Procedure Bulletin Rev. Proc. 2014-61, page 5; http://www.irs.gov/irb/2014-47_IRB/ar14.html
IC-Life Gaps 2. 07/15