How Much Life Insurance Do I Need

Determining the life insurance amount needed is almost always an estimate. You should try to use reason to estimate how much life insurance you should purchase rather than emotion. If you are reacting to the amount of insurance as 'that's way too much', then you are using emotion. Instead look at the need that the insurance is covering. This can help prevent being underinsured or leaving your dependents in financial difficulty.

The following calculator is based upon the following premises:

• You are a breadwinner attempting to maintain your dependents' standard of living upon your death.
• You are maintaining your current standard of living through your paycheck.
• Providing a replacement paycheck upon your death will allow your dependents to maintain their current standard of living (paying the mortgage, buying groceries, saving for college, etc.).
• The calculator will determine how much lump sum life insurance is needed to provide this replacement paycheck.

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• Income to be Replaced: Enter your current paycheck.
• Percent of Income Needed:Assuming that the full value of the paycheck may not be needed, you may only need 80% of the current paycheck to maintain your dependents standard of living. There will be one less car, less clothing and food to purchase, etc.
• Interest Rate: Estimate a conservative interest rate that will be applied to the insurance amount through the years as the replacement paycheck is paid out.
• Inflation Rate: To better duplicate your paycheck the calculator will use an inflation rate to increase the amount of the replacement paycheck each year. As one would expect your income to increase each year by roughly inflation this measure helps prevent the assumption that your dependents will remain on a fixed income.
• Number of Years to Replace: How long you want to produce the replacement paycheck. To properly duplicate your income stream you can enter the number of years until you retire. Another common assumption would be until any children are done schooling.