So, how much life insurance do you need? Well, the answer isn’t really how much life insurance you need… it’s how much investment capital your family will need at the time of your death. Their need for capital — on a gross basis — is really a function of two variables:
1. How much will be needed at death to meet immediate obligations?
2. How much future income is needed to sustain the household?
The first category is fairly easy to estimate. It’s the sum of final expenses (including uncovered medical costs, funeral expenses and final estate-settlement costs) and other lump-sum obligations (such as outstanding debts, mortgage balance, and college costs). The second variable is a bit trickier. It involves calculating the “present value” of future needed cash-flow streams. By answering a few simple questions below, you can get a rough sense of the needs for capital that might exist at your death.
A few tips: Our analysis of your needs depends upon the answers you provide us to the questions below. Please answer all questions. If you do not understand a question, click on the highlighted term for more information and we’ll explain what we’re driving at. This calculator has provided a rough sense of your potential life insurance needs. To the extent that you or your beneficiaries are eligible for Social Security benefits, those benefits have not been included in this analysis. Social Security benefits, if available, will somewhat reduce the need for life insurance. For a more accurate and detailed analysis, contact a professional life insurance agent.