Deciding how much life insurance to buy depends on a variety of factors and individual circumstances. Many people, although they understand how important this coverage might be in the future, find it difficult to put enough in place. Some take out too much; many take out too little. A life insurance needs calculator could make this process easier by helping calculate ideal levels.
Why is it Important to Have Enough Life Insurance?
In an ideal world everyone taking out life insurance would be given just enough protection for the needs of the people they may leave behind. This is hard to achieve. It is probably more common for people to either over-insure or under-insure themselves.
Having too much life insurance may not sound a bad deal but it does mean that the policy holder will probably be paying higher premiums than they need to. Having too little coverage could leave a family without enough cash to cope financially. Taking some time to assess how much will be enough is, therefore, worth doing. A life calculator may be helpful as part of this process.
What are Life Insurance Needs Calculators?
These online tools are usually aimed at helping people work out how much coverage they may need to buy. A calculator will usually ask a range of questions that will then be analyzed and used to produce an estimated figure. Typical information that is needed may include:
- Income Timescale: Based on the current age of the prospective policy holder this asks how many years his/her family may need an income to live on.
- Income Sum: This covers how much income a family may need on an annual basis. This may be less than the current income of the policy holder if the spouse/partner has an income of their own. It may also be more than the current income if the death of the individual will add additional costs (such as child care).
- Available Savings: The tool may also ask if there are any savings or other life policies that could go towards covering future costs.
- Number of children: Parents may have additional life insurance needs if they have children that are pre-college age. Most calculators will ask the ages and numbers of children in a family to help add college costs to the estimate.
- Additional expenses: A calculator may also factor in additional expenses such as burial costs, expenses after death, any applicable estate taxes and cash to cover future special events and purchases (i.e. weddings, car purchases).
Life insurance calculators may not all ask the same questions. The results given may also vary. Some tools simply give an estimated coverage amount. Others also give an explanation at the end of the process which shows what the calculation is based on. It may be worth using at least two calculators during this process to compare results.
What Else Needs to be Done to Get Enough Life Insurance?
A life insurance needs calculator can only really work if the person using it has worked out the figures needed to input data. Spending some time looking at family finances and projected needs into the future will make this a more effective tool.
Once happy with an estimated amount it may be worth spending some time thinking about the kinds of life insurance products that are available and which may be the best solution. Looking at how to save on premium costs before choosing a policy may also be useful. For example, using online life insurance comparison tables may go some way to helping keep costs as low as possible.
Carol Finch - Carol Finch is the Topic Editor for Retirement Planning, Budgeting, E-Commerce & Technical/Business Writing on Suite101.
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