One of the most common questions we hear at Huntley Wealth is:
“How much life insurance do I need?”
It can be stressful.
You don’t want to be “insurance rich” and cash poor. You want to buy just the right amount.
Here are a few guidelines, depending on your REASON for purchasing life insurance:
- Income Replacement for the “bread winner” – 10x your income
- Non-working spouse – half the coverage of the working spouse
- Key Person Insurance for Businesses – 1-3x annual revenue the key employee is responsible for
- Buy Sell Coverage for Business – 1 to 1.5x current value of business
- Final expenses – $10,000 to $50,000 for funeral, burial, and debts
Out of all the reasons to buy insurance, the one we see most often is #1 above… people using life insurance to replace lost income in the event of death.
If you’re trying to replace lost income due to death, this life insurance calculator will help you determine how much life insurance coverage you need, by solving for the face amount needed to replace your income.
This is a pretty smart life insurance calculator.
It factors in inflation (if your spouse needs $500,000 today, he/she may need 2x that 15 years from now) and assumes you’ll be earning interest on your death benefit.
Some additional considerations when determining how much life insurance you need are:
- Time Left until Retirement – Many peoples’ biggest asset is their ability to work and earn income. Since most breadwinners purchase life insurance to replace that lost income in an unexpected death, you should consider how long you need to or plan to work. If you only plan working another 10 years, you may not need more than 10 years of life insurance coverage, and so on.
- Spouse’s Income Potential – If your spouse does not currently work, would he or she be able to if need be? What is his/her income earning potential based on experience and education?
- Consider Your Debt – It’s common to purchase life insurance to cover a mortgage, credit debt, or business loan. Consider how long the term of payments is. If your mortgage will be paid off in 30 years, do you really need whole life coverage? Why not just 30 year term?
- Consider Your Savings & Investments – If you are actively saving money, adding to your 401K or IRA, etc., and your debts are decreasing as mentioned in #3, your need for insurance may greatly diminish in a short period of time. Please consider all of the above when determining how much life insurance you need.
Huntley Wealth Life Insurance Calculator
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