Ideas, tips and news about life insurance and the uses of life insurance

In a rocky economy stability and preservation of capital may be your best bet. We have often recommended whole life insurance to those with good income and a strong asset base. Why? Term life insurance is often a good and the right choice to get sufficient life insurance. The first step is always: Get enough. Then look into the type of life insurance.

BusinessWeek.com just had an article quoting the chief economist at Standard and Poor’s and discussing why whole life insurance can be a great choice. This goes against the generalities of some pundits who say one should always get term life insurance. The truth is never that simple. The true answer is that it depends and most importantly that you get enough life insurance, no matter the type.

Of all the questions we get, one of the top ones is how much life insurance should I have? Also, Do I have enough life insurance?

There are tools to calculate how much life insurance is right. You can look it up on the lifeinsure.com site or simply use the “Interest method.”

This works as follows: How much income would your family need to maintain life style, save for future needs and wants such as college and retirement for your spouse and build in a “fudge factor” for not having enough? Let’s say the answer to that question for you is $$80,000 per year.

The formula then is to

1. Pick an interest rate that you think your spouse or dependents could make. Let’s use 5% for an example.

2. Divide the income ($80,000 by 5% or .05) That comes to $1.6 million.

3. Thus you need $1.6 million of cash to provide $80,000 per year. You can subtract the amount of liquid cash or investments from the $1.6 million and you now have a life insurance amount to work with.

Here’s the formula: Income needed per year divided by interest rate = result minus cash and liquid investments.

See the page at the lifeinsure.com site How much life insurance should you have?