This is a pretty smart life insurance calculator.
Inflation & Interest
First, the calculator factors in inflation. Let’s say you determine that if you were to pass away today, your spouse would need $500,000 of life insurance coverage.
Well, here’s the problem…
Due to inflation, your spouse may need twice the amount as today if you passed 15 years from now.
Next, the calculator also factors in interest your beneficiary will earn on the death benefit proceeds. As long as we assume your spouse won’t “stick it under the mattress”, we can assume they’ll earn some interest on the money, right?
And by adding this interest to the calculation, your spouse’s money will last longer, meaning you may be able to get by with less coverage.
Life Insurance for Supplemental Retirement Income
As indicated by the aforementioned LIMRA report, you may be interested in life insurance NOT for its coverage, but to grow a cash value and future income stream.
If that’s the case, you’re less concerned about how much you need (making this calculator less important), and more concerned about the best whole life or universal life insurance policies for cash value growth and future income.
If that is your primary concern, I recommend you start your search using our term vs whole life insurance calculator.
Life Insurance for Estate Planning
Now let’s say you have a large estate, and may need life insurance to pay for estate taxes or to provide liquidity to your heirs.
In that case, our income replacement calculator won’t be of much use.
You’ll want to speak to an estate planning attorney and CPA to calculate (and possibly mitigate) your tax liability upon death.
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 on 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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