Life Insurance Calculator: How Much Do You Need?
August 20, 2021
With so many quizzes, personality tests, and calculators online, it is hard to know what is legitimate and what is clickbait. If you’re wondering how to determine how much life insurance you need, take comfort in knowing that a life insurance calculator is a legitimate resource. Unlike quizzes to determine which Harry Potter house you would be in, this type of tool uses a computer algorithm to analyze your potential expenses. Here is an explanation of four ways that various calculators come up with this figure.
1. Multiply Your Income
The simplest calculators ask for your income and then multiply that number by ten. This rule of thumb is popular on the internet, but it is a bit simplistic. It does not account for other factors such as money you already have saved or debts you need to pay. It is also not a realistic estimate for families with only one working parent.
2. Multiply Your Income and Add Children
This type of calculator is slightly more advanced because it takes into consideration the educational needs of your children. It asks for your income, multiplies it by ten, then adds $100,000 for each child you have. While this is a reasonable estimate of college costs, the overall calculation still does not take into account any other variables, including the age of your children.
3. Use the DIME Formula
The acronym DIME stands for debt, income, mortgage, and education. Life insurance calculators that use it will ask you to input dollar amounts for each category and will then calculate a more comprehensive prediction of your life insurance needs. Here is an explanation of each category:
- Debt – Everything you owe money for except your home.
- Income – The total amount of money your family would need for a certain number of years after you are gone.
- Mortgage – The payoff value of your house.
- Education – The cost of college for your children.
4. Subtract Assets From Obligations
The best calculators are those that take into account the diverse debts and obligations of your family. They ask questions about what you owe now and want to pay for in the future, including funeral expenses. They also take into consideration not just your current income but also the value of services that stay-at-home parents provide.
A life insurance calculator is an invaluable tool when planning for your future. However, be sure that the number you arrive at makes sense and that your overall plan takes into account unexpected circumstances that might arise. Include both your family and your insurance agent in the conversation and keep your mind open to ways you can diversify your protection with multiple, smaller policies.
About 1891 Financial Life
At1891 Financial Life, we pride ourselves on giving back to the communities that we serve by providing quality and comprehensive insurance solutions. We are a not-for-profit life insurance Society, which means the sales from these financial service products help fund member benefits along with social, educational, and volunteer programs designed to respond to community needs.
Our portfolio is extensive, ranging from various life insurance policies to our new MYGA to support your financial needs no matter what stage of life you’re in. For more information, contact us at (855) 804-7424.