|Life insurance products are complex in terms of pricing, contractual clauses, and taxation. Providing a simplified overview may result in misleading information and is therefore not provided here. Please ask in the forum for advice. Additional information can be found under External links below.|
Life insurance is a contract between the insured, or owner, and a life insurance company. The owner pays a stipulated premium to the insurance company. If the insured dies while the policy is inforce a death benefit is paid to the beneficiary. Some policies accumulate cash value which is available by loan or upon surrender to the owner. Also, some policies have accelerated death benefits which may be available if the insured is expected to die within six months to a year.
Determining family life insurance needs
This worksheet assumes that both spouses are working and will continue to work if one partner dies prematurely. Replacing 100% of your income may be a good starting place. This should leave the survivor with the same standard of living. Some expenses go down when one partner dies but other expenses, such as childcare, usually go up.
|Spouse #1 Dies||Spouse #2 Dies|
|A. Income Need for Family|
|Annual Income Needed||$___________________||$___________________|
|- Social Security/Fixed Benefit||___________________||___________________|
|= Income Shortage ÷ Assumed Interest Rate[note 1]||___________________||___________________|
|= Amount of Capital Needed||___________________||___________________|
|+ B. Last Expense Fund||___________________||___________________|
|+ C. Emergency Fund (3 to 6 months income)||___________________||___________________|
|+ D. Education Fund||___________________||___________________|
|= E. Total dollars needed||___________________||___________________|
|- F. Present Insurance/Assets||___________________||___________________|
|= G. New Insurance Needed||$___________________||$___________________|
- Please note that the calculation of Income Shortage, can be done in two ways. Dividing the shortage by an assumed interest rate results in the amount of capital to produce desired income indefinitely. If you prefer to provide income for a fixed period, just multiply the Income Shortage by the number of years desired.
- Definition of life insurance by forum member mephistophles (Lee E. Marshall), a Chartered Life Underwriter (CLU)
- Family Needs Analysis worksheet by forum member mephistophles (Lee E. Marshall), CLU.
- term4sale.com Term Life Insurance Quotes (unbiased -- without entering any personal information)
- How To Buy Life Insurance by The Finance Buff
- The Life Insurance Course, a comprehensive free online life insurance course from MyCEisOnline.com. This course is intended as continuing education for insurance agents.
- The Glossary provides definitions for: Cash value life insurance, Limited Payment Life Insurance, Survivorship life insurance, Term Insurance, Universal Life Insurance, Variable Life Insurance, Variable Universal Life Insurance, and Whole life insurance. (Thus demonstrating the complexity of these products.)
- Insuring America: Market, Intermediated, and Government Risk Management Since 1790 by Wright, Robert E., (November 5, 2007)
- How Much Life Insurance Do You Need? by Glenn S. Daily (2000)
- How and When to Purchase Low-Cost Term Life Insurance by Peter Katt (1998)
- Human Capital, Asset Allocation, and Life Insurance by Ibbotson, Roger G., Chen, Peng, Milevsky, M.A. and Zhu, Xingnong (2005). A fuller version of this paper is also available.
- The Adequacy of Life Insurance by Gokhale, Jagadeesh and Kotlikoff, Laurence J., (July 2002). TIAA-CREF Institute, Working Paper No. RD72
- Life Insurance Coverage: How Much Is The Right Amount? by Claude C. Lilly, University of North Carolina at Charlotte and TIAA-CREF Institute Fellow, March 15, 2006