It’s not calculus or trigonometry, but when estimating the life insurance needs for your family, it’s worth it to take a few minutes to work through these five important calculations before purchasing life insurance:
1. How much income may need to be replaced?
How much of the family income do you provide? What would the approximate death benefit of a life insurance policy have to be in order to provide a continued source of income at an average rate of return? For instance, if you make $75,000 annually and expect a 5% rate of return on the investment of the death benefit, the amount would need to be $75,000 divided by 5% (or .05) which equals $1.5 million. What about your life income value?
2. How much debt needs to be covered?
To ease the burden on your loved ones, what expenses need to be paid off by the life insurance benefit? Consider home mortgages, equity lines, student loans, business debts, credit cards, and auto loans. Also consider the expenses for funeral arrangements and cemetery costs.
3. For what period of time do you need to be insured?
How long do you need this life insurance policy to last? It’s difficult to know when disease or illness will make it difficult to be insured or when you may experience financial hardship that destroys your life’s plan. In some cases, it might be best to consider term life insurance to cover the timeframe of a mortgage debt, the growth of children into adulthood, or a key man business relationship. In other cases, a permanent form of life insurance may be best for specific needs such as estate planning, long-term care, or charitable gifting.
4. How much premium can I afford?
If cash flow is limited, it might be best to get started with more inexpensive term life insurance (with options to convert to permanent life insurance) until your income situation improves and you can either invest in a more permanent solution or add another, longer-term policy. Or get started with a permanent life insurance policy that builds cash value and may allow increases in the death benefits with greater contributions to the premium. Whatever you decide, be sure that you can continue to budget for the life insurance premium payments so that the policy does not lapse and put your family in jeopardy.
5. When will I review my life insurance needs?
How often is my situation changing? Am I expecting a change in employment soon? Maybe there’s an increase an income or an inheritance? Is there a baby on the way? Or are the babies all moving out of the house now that they’ve grown up? Life situations change and so do your insurance needs. Even if nothing is changing for you, the world still changes. How will inflation affect your future needs? Examine your upcoming changes, determine how often you need to revisit your life insurance needs, and mark the next review on your calendar. Let your agent at Mountain Lakes Insurance know when you’d like a call to go over your life insurance.
In addition to these five life insurance calculations, there are others to consider: How does the cash value of a policy change? What happens at the renewal of the policy? Are there changes to the life insurance policy at the attainment of certain ages? At Mountain Lakes Insurance, we’ve helped folks answer these calculations with choices in coverages that meet the ever-changing needs of their family and their futures. Schedule a no-obligation consultation today with a professional, experienced, and caring life insurance agent at Mountain Lakes Insurance by calling 770-926-9444 or contact Mountain Lakes Insurance.