Life Insurance Calculator

There are three common ways insurance agents can determine an individual's life insurance needs: the multiple income approach, the human life value approach, or the needs analysis.

Multiple Income Approach

The simplest way to calculate life insurance is a multiple of an individual's income, usually five to seven times the person's income. However, existing properties and other sources of protection (Social Security, retirement plans, savings - all discussed in the next sections) that can be included in the portfolio should be considered. A person only needs to purchase protection for the exposed balance. Representatives also understand the subjective preferences of families: put current consumption on future savings, natural optimism, etc. desire or need for preference. These issues relate to complex economic theories that are not covered in this book.

Value Approach to Human Life

This method takes into account your client's age, gender, occupation, current and future earnings, and employee benefits. There are several steps to determining the total value of the customer if they are going to die today:

• Estimate the client's earnings from now to a certain point in the future - typically the expected retirement age. Be sure to factor in future pay increases as well.
• Subtract the insured's annual taxes and living expenses from the total . It is generally safe to assume that 30 percent of their salary will go to taxes.
• Choose a default rate of return on the remaining total and subtract that from the gross amount . In other words, subtract the interest you expect the money to earn.
• Add in the cost of additional benefits, such as healthcare provided through employment, which will need to be replaced when the client dies . Remember to take inflation into account.

The primary purpose of this method is to replace lost income. It does not need to take into account funeral costs, children's education costs, or other specific future needs.

Capital Needs Analysis

Capital needs analysis is the most widely used approach for estimating life insurance coverage. In addition to varying the client's salary, it also takes into account other sources of income and the special needs of survivors.

This method affects:

• Current and future income of both the insured and surviving spouse
• Urgent lump-sum cash needs after death, such as funeral expenses, debt repayment, and mortgage payment
• Future expenses such as college, wedding, long-term care costs, and retirement funds
• Existing family assets, pension funds or insurance policies

Considering all future needs, there are two ways to calculate how much insurance the client needs based on how he wants to use the funds in the future.

• Earnings Only Approach: Survivors will only live on the investment earnings of the policy without changing the principal value. This method is preferred if the client wants the money to be available for their children after the spouse also dies. Like any investment, this method is subject to the risk of changing market interest rates. To ensure an adequate income stream, the death benefit is often significantly higher than the liquidation approach.
• Liquidation Approach: The surviving beneficiary uses a portion of the principal and investment earnings. There is more risk in this approach, especially if the investment is yielding less than originally anticipated. The surviving spouse may not have enough income to support the rest of his life.

What types of individuals or couples can benefit from each of the life insurance calculation alternatives presented above?