RUN THE NUMBERS The Needs-Based Approach to Life Insurance This worksheet provides a mechanism for estimating life insurance needs using the needs-based approach. The amounts needed for final expenses, income replacement, readjustment needs, debt repayment, college expenses, and other special needs are calculated and then reduced by funds available from government benefits and any current insurance or assets that could cover the need. This worksheet is also available on the Garman/Forgue companion website. Example Your Figures $12,000 $ +823,217 +19,000 + Factors Affecting Need 1. Final-expense needs Includes funeral, burial, travel, and other items of expense just prior to and after death 2. Income-replacement needs Multiply 75 percent of annual income* by the interest factor from Appendix A-4 that corresponds to the number of years that the income is to be replaced and the assumed after-tax, after-inflation rate of return. ($42,000 X 19.6004 for 30 years at a 3% rate of return) 3. Readjustment-period needs To cover employment interruptions and possible education expenses for surviving spouse and dependents 4. Debt-repayment needs Provides repayment of short-term and installment debt, including credit cards and personal loans 5. College-expense needs To provide a fund to help meet college expenses of dependents 6. Other special needs 7. Subtotal (combined effects of items 1-6) 8. Government benefits Present value of Social Security survivor's benefits and other benefits. Multiply monthly benefit estimate by 12 and use Appendix A-4 for the number of years that benefits will be received and the same interest rate that was used in item 2. ($2,725 x 12 x 11.9379 for 15 years of benefits and a 3% rate of return) 9. Current insurance assets 10. Life insurance needed +10,000 + +75,000 +0 +$939,217 + + -390,369 -100,000 $448,848 $ *Seventy-five percent is used because about 25 percent of income is used for personal needs. RUN THE NUMBERS The Needs-Based Approach to Life Insurance This worksheet provides a mechanism for estimating life insurance needs using the needs-based approach. The amounts needed for final expenses, income replacement, readjustment needs, debt repayment, college expenses, and other special needs are calculated and then reduced by funds available from government benefits and any current insurance or assets that could cover the need. This worksheet is also available on the Garman/Forgue companion website. Example Your Figures $12,000 $ +823,217 +19,000 + Factors Affecting Need 1. Final-expense needs Includes funeral, burial, travel, and other items of expense just prior to and after death 2. Income-replacement needs Multiply 75 percent of annual income* by the interest factor from Appendix A-4 that corresponds to the number of years that the income is to be replaced and the assumed after-tax, after-inflation rate of return. ($42,000 X 19.6004 for 30 years at a 3% rate of return) 3. Readjustment-period needs To cover employment interruptions and possible education expenses for surviving spouse and dependents 4. Debt-repayment needs Provides repayment of short-term and installment debt, including credit cards and personal loans 5. College-expense needs To provide a fund to help meet college expenses of dependents 6. Other special needs 7. Subtotal (combined effects of items 1-6) 8. Government benefits Present value of Social Security survivor's benefits and other benefits. Multiply monthly benefit estimate by 12 and use Appendix A-4 for the number of years that benefits will be received and the same interest rate that was used in item 2. ($2,725 x 12 x 11.9379 for 15 years of benefits and a 3% rate of return) 9. Current insurance assets 10. Life insurance needed +10,000 + +75,000 +0 +$939,217 + + -390,369 -100,000 $448,848 $ *Seventy-five percent is used because about 25 percent of income is used for personal needs