Getting enough life insurance coverage is vital to ensuring your loved ones receive financial care if you pass away. a life insurance calculator is one way to find out what you need.
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Let’s take a look at the ways you can decide how much life insurance you need and how a life insurance calculator can help you find the right coverage for your specific situation.
life insurance calculator
An easy way to find out your coverage needs is to use this life insurance calculator. Enter your annual income and how many years your dependents will need financial support, your debt, future college costs, funeral needs, savings, and any other life insurance coverage, and you’ll get a result right away.
how to use our life insurance calculator
A good estimate of life insurance needs requires using a formula that includes your future financial obligations and assets, such as savings, that your loved ones can use if you die.
To find out how much life insurance you may need, follow the steps below and our life insurance calculator will do the rest.
1. enter your annual income and how many years of income you want to cover. we multiply your annual income by the number of years your loved ones will need that salary.
So if you earn $50,000 and want to provide your family with that income for 10 years, you’ll need to factor in $500,000. (If you’re a stay-at-home parent, you can estimate how much it would cost to cover child care if he dies instead of using wage data.)
2. Enter your debts and the future costs you want to cover. To do this, determine how much you owe or anticipate owing for the following financial obligations:
• debts, including mortgages, credit card debt, and loans • future educational costs, such as college tuition • any funeral or burial expenses you want to cover
Let’s say that total is $300,000. We will add this financial obligation to the amount of your annual income. That gives you $800,000 to cover annual income and financial obligations.
3. enter your savings and any current life insurance coverage. Now we want to subtract your assets, such as funds in a savings account, retirement plan, or other life insurance policy.
For example, let’s say you have $200,000 in savings and other sources that your family can access if you die. we subtract that from your income and financial obligations.
4. results. When you use our life insurance calculator, a results page will provide you with an estimate of your life insurance needs along with details of what you entered.
Our example here shows that the individual may need $600,000 in life insurance based on their income replacement needs, financial obligations, and assets.
tips for calculating how much life insurance you need
Here are things to consider when deciding your life insurance needs.
find out the type of life insurance you need
Your reason for buying a life insurance policy influences how much coverage you need.
- Do you need life coverage until you pay off your mortgage and through your children’s college years? in that case, a term life insurance policy to cover those years may make sense.
- Do you want lifetime coverage or the opportunity to build cash value? then a permanent life insurance policy would be better.
- Employers often offer group life insurance to employees. These policies are generally provided at no cost, but offer limited death benefits and are related to your employment. once you leave your job, you will likely lose life coverage as well.
- however, you can subtract existing life insurance when calculating your life insurance needs.
- A life insurance rider is an optional add-on to a policy that provides additional coverage. Depending on the rider, you may be able to benefit from coverage while you are still alive.
- A free accelerated death benefit rider is often included in life insurance policies. can be very valuable because it allows you to access your own death benefit money if you become terminally ill.
- Other riders, like a long-term care rider or a waiver of premium rider, typically add cost to the policy, but are a way to customize life insurance to get exactly what you want.
how to manually calculate how much life insurance you need
In addition to using the Life Insurance Needs Calculator, there are other ways to calculate how much life insurance you need. there are four options here.
option 1: multiply your annual income by 10
The 10x income method is the easiest way to get an estimate, but it’s also not a very good method. you take your annual income and multiply it by 10. that’s it.
so if you make $100,000 a year, I’d multiply that by 10. That’s $1 million of suggested coverage.
but using this method could leave you with insufficient insurance. it does not take into account many factors that should be included in a life insurance calculation. Those factors include your debts, your mortgage, and your children’s future educational needs. it also ignores working parents at home, who may not have a salary but whose household contributions are critical.
If that parent dies, the family may have to pay for childcare, housekeeping, and other services. the “10x income” method doesn’t take that into account.
option 2: multiply your annual income by more than 10
Multiplying your income by 10 may not be enough. but as we mentioned, simply multiplying your annual income by a fairly random number does not represent your individual situation. It’s best to use a life insurance calculator that takes into account both anticipated needs and existing assets that could be used.
option 3: 10 times income plus $100,000 for college
If you have children with future college needs, another option is to multiply your income by 10 and then add $100,000 to pay for college.
Like the 10x income method, simply adding $100,000 for college gives you an estimate, but doesn’t take into account other factors that should influence your life insurance coverage.
option 4: the dime method
the dime method includes more life insurance factors than multiplying your income. dime means:
- Debt and final expenses: Calculate all your debts, including credit cards and loans, and estimated final expenses, such as the cost of a funeral.
- Income: Estimate how much money your loved ones will need each year and multiply it by the number of years they will need that support.
- mortgage: check how much you owe on your mortgage.
- education: think about your children’s future educational needs, including college.
Combine all of those expenses and that should give you a rough estimate of how much life insurance you need. the dime method doesn’t include your savings or costs like child care, so you’ll want to keep that in mind.
how to get the best life insurance rates
Once you know your life insurance needs, you can start thinking about how to get the cheapest life insurance. here are some tips:
don’t wait to buy a life insurance policy
If you buy life insurance when you’re younger and healthier, you’ll get much cheaper rates. For example, a $500,000 20-year term life insurance policy costs an average of $300 a year for a 30-year-old man. the annual price goes up to $936 for a 50-year-old man.
shop for term life insurance at the most affordable rates
A term life insurance policy allows you to lock in level rates for a set period, such as 10, 20 or 30 years at reasonable rates. Whole Life is meant to last a lifetime and builds cash value, but costs more. For example, a 30-year-old man would pay only $192 a year for a $250,000 20-year term life insurance policy, but pay $2,535.72 a year for a $250,000 whole life insurance policy.
skip the life insurance clauses you don’t need
Life insurance riders add benefits to a life insurance policy, like waiving premiums if you become disabled, but they make your policy more expensive. If you’re looking for the cheapest life insurance rates, avoid unnecessary riders.
check for the best life insurance rates
compare life insurance quotes with multiple companies to see which one offers you the best price, policy and service. Life insurance rates vary from company to company, so comparing quotes online or working with an independent broker can help you find the best life insurance rates for your age and health.
Related: Term vs. Whole Life Insurance: What’s the Difference?
consider other life insurance policies
You should consider any existing life insurance policies you have when evaluating your life coverage needs.
consider other life insurance benefits
You can customize a life insurance policy with additional clauses.