Do you Have Enough Life Insurance?
Of all the questions we are asked, 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?