How Much Life Insurance Do You Need?
An excellent question to which there are as many answers as people that you ask. Every advisor, financial columnist and relative has a formula that is "the best".
The following are some of the more commonly used approaches. To get details about each, just click on the title and you will go to a page that describes the pros and cons of that method.
Basic Approaches- Multiple of Income and Cover Your Debts
Human Life Value- Capital Needs Analysis
Capital Preservation and Capital Liquidation
Life Cycle Model of Consumption and Savings
The method that makes the most sense to you is most likely the one that may work best. No method is perfect, as you are trying to hit a moving target -- everything changes and your needs will change with them. The more complex you make your planning, the more chances there are that something will not work as anticipated. This does not mean that you should only use the simplest methods. It is also important to actively participate in all of your planning, fully understand it and constantly monitor it. After all, it's your money.
This section is designed as an ongoing project to assimilate and guide you in discussions of the various planning methods used, the pros and cons of each, and resources to assist you in getting the information -- including software -- to make simple, mid-range or extremely complex calculations.
Here are some resources available to determine your life insurance needs:
Do it yourself:
Worksheet - "How Much Life Insurance Do You Need" (click to visit & download PDF Version) on this site, either by itself or in conjunction with:
Web Analyzers
Financial Software Packages - e.g.,Quicken and Microsoft Money
As you create your insurance plan, remember that life insurance is not for you, it is for your survivors. Therefore, you typically will only have a need for life insurance when you are leaving behind some one or some entity dependent on your income.
Please let me know if you have any resources or methods that might be of value. As different methods evolve, they will be added to this site.