4 Tips On How To Calculate The Life Insurance Amount You Need

Most people start thinking about the inevitability of death at some point, which is when they realize that they wouldn’t want to leave their family to deal with certain things, such as debt and similar, after they pass away. If you have recently started thinking about the same thing, then you have probably decided to get life insurance. That is a pretty wise move, I have to say, and I am glad that you are thinking about your family’s future.

In case you are still trying to decide if life insurance is even necessary or why you would need it, let me tell you a few things that you need to know. By getting a policy, you are actually buying a future for your spouse and your children, which is even more important. In the event that something happens to you, your family will have certain financial stability to rely on. This will make covering expenses much easier and not to mention the fact that it will make fulfilling your children’s dreams, such as going to college, possible.

I know that thinking about your own death is pretty difficult and gruesome, but the simple truth is that we all need to do it at some point. That is precisely why I advise you to start thinking about it in a constructive way, i.e. make sure that your family will be financially stable in case anything, God forbid, happens to you. In other words, I advise you not to contemplate the idea of getting life insurance, but to turn that idea into reality instead.

Here are some reasons you might need it: 

How To Calculate

Now, if you thought that choosing whether to get life insurance or not was the hardest decision you had to make, wait until you hear the next thing. To put things simply, after realizing that you do need to get yourself a policy, you will have to think about the exact amount that you will need to get. That’s when things start getting really complicated. Chances are that, no matter how hard you try to work things out, you will always get rather confused with the whole situation and you’ll be unable to calculate everything correctly.

It doesn’t have to be that way, though. Things can get at least a little bit easier, if you only take the time to figure everything out and learn how to do those calculations. What I am trying to say is that you will undoubtedly be able to calculate the amount of life insurance that would be necessary, but you will need to put some effort into it. After all, you cannot expect anyone else to do this for you and you most definitely cannot expect the right amount to appear in your dreams.

So, that’s our main question right there. How can you actually calculate your life insurance? I am sure that this can be confusing for most people, but I believe that following a few tips and using a few tricks can help everyone do the calculations correctly. If you have decided to get serious about it and estimate the amount you need rather sooner than later, then I say you should keep reading, because I’ll give you a few of those tips and tricks that I’ve mentioned.

1. Multiply Income By 10

There are a few rules of thumb that you can resort to when trying to quickly determine your current life insurance needs. Instead of taking a random guess, you should use those rules to get at least an approximate estimate. Let me tell you about the first rule that you might want to follow in order to do these calculations correctly. Although some economists might call it outdated today, due to the state of the economy and the interest rates today, it is still generally regarded as a pretty great rule that could be of help.

Basically, the idea is to multiply your current income by ten and get life insurance for that specific amount. While this can be a great approximation of the amount you would need, the truth is that it has some drawbacks. For one thing, it doesn’t take into account the specific and detailed needs of your family. Apart from that, it doesn’t consider your savings or existing insurance policies. So, while it’s a good rule, you might want to take it with a grain of salt.

2. Add Extra Per Child

If you want to use the above rule, though, then I suggest you at least take into account your children’s future education needs. This means that you should buy insurance that is 10 times your income, but still add something extra per each child. The best thing would be for you to calculate the approximate education costs and thus figure out how much you should add per child. As I have already explained, this can be a great rule, but it doesn’t always apply to everyone and it can be faulty.

3. Follow The DIME

When I say that you should follow the DIME, I am simply talking about another rule of thumb that could come in handy. The term “DIME” actually stands for debt, income, mortgage and education. Basically, the trick is in calculating your debt, your mortgage, your family’s education needs and your annual income (that you should multiply by the number of years that you believe your family would actually need financial support after your passing). After you’ve summed those things up, you will get a more detailed look at how much insurance you might need. Once again, though, this rule doesn’t account for your savings or other policies that you might have.

4. Use A Calculator

Due to the fact that all of the above mentioned rules don’t take a few important things into consideration, experts have decided to make things even easier for people, which has led to the appearance of insurance calculators. So, if you aren’t sure that you would be capable of calculating everything manually and if you believe that the rules mentioned above aren’t doing you any actual favors, you should use a life insurance calculator and let the machine decide this for you. Of course, this most certainly doesn’t mean that you should use just any calculator that you come across.

It goes without saying that you need to find a great one that will take all of the important aspects into account and that will be provided by a trustworthy and reliable source. The most important factors that these calculators should consider are your income, the number of years you would need coverage for and your existing life insurance coverage. So, make sure to check the tools that you find and see if they are asking for the right information.

When you have found one of these tools that are inquiring the correct information and that are provided by a reliable source, all you’ll have to do is put the data into the calculator. The rest is up to the machine. The result you will get will show you exactly how much life insurance you should get. It doesn’t get much easier than that, does it?