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The (a) expense needs formula itemizes your family needs to determine how much insurance is necessary. Add together the items below:
Expenses Needs Funeral Expenses Legal Fees Estate & Gift Taxes Business Buy-out Probate Fees Medical Deductible Emergency Fund Mortgage Expense Rent Debts & Loans College Child care Private schooling Emergency fund Maintenance |
Guidelines Usually $5-15k Set by court A % on estates over $600,000 Your percentage of business Authorized by probate courts Consider your deductible ceilings 6-9 months expenses Mortgage balance Rent for 10 years Enough to pay all debts Total projected college costs Total from infant until school Costs until college 3 to 6 months total expenses Cleaning and repairs for 10 years Total $_______________ |
Total Coverage Needed - (minus) current life coverage, bank savings accounts, and other assets. This is what your family would need after you’re gone. It will look like this:
| Total expenses - Life insurance - Cash & savings = Expense or insurance needs formula |
The (b) income replacement formula is based on the your annual income and is used if you’re still working. If you’re retired, include your pension if it ends at your death. Multiply your annual income by how many years you want your family supported (usually until you retire).
It would look like this:
| Annual income X years until retirement = Income replacement method |
Another income replacement method is to multiply your annual income times 10, or multiply your annual income x 5 + your mortgage.
| Annual income X 10 (years) = Income replacement method ~OR~ Annual income X 5 (years) + Balance owed on your mortgage = Income replacement method |
