You know all those inspiring songs and speeches that encourage you to live like it’s your last day on Earth? Turns out that’s a good mindset for calculating how much life insurance you may need. To make it easier, we’ve included a life insurance estimator to walk you through the many factors to consider.
The fields in the Life Insurance Needs Estimator are listed by importance. So, as you fill it out, pay special attention to the first three fields: paying off your mortgage, replacing your income and final expenses. The other fields are good to consider but not a necessity.
Pay off your mortgage
Replace your income
Pay final expenses
Pay for college
Pay off debts
Donate to charity
1. Pay off your mortgage
Keeping with the “if I die tomorrow” mentality, enter in the amount you owe on your mortgage right now. This eliminates a huge financial burden from your family.
If you’re planning on moving or buying your first home, you should still consider including a mortgage amount on the estimator. Since you don’t have an exact number for your mortgage, you will need to estimate it.
2. Replacing your income
For this field, enter your current annual income. This is not the same as household income. This is just your individual, annual income.
To figure out the number of years to replace your income, consider the number of years before you retire. If you’re 30 today and you expect to retire at 60 years old, you will want to replace your income for the remaining 30 years.
3. Final costs
This field includes the expenses that go into funeral and burial. Specifically, things like the cost of the funeral home, flowers, programs, an officiant speaker, the burial site, cemetery plot and anything else you may want at your funeral. You will see that our estimator states the typical funeral costs around $10,000. That’s a good number to put in.
Reasons to consider a higher amount include inflation and additional expenses for funeral and burial arrangements. If cremation is a potential option, consider an amount lower than the suggested $10,000.
4. Pay for your children's college
This is the hardest field to calculate because there are so many unknowns. It’s common to leave this field blank unless you know you want your child to go to a certain school. If you want to include an amount, but don’t have a school in mind, you can always base it on your experience.
5. Pay off your debts
For this field, think of any outstanding debts beyond your mortgage that may be a burden on your family. For example: student loans, auto loans, mortgage on a second home, credit card debt, etc.
6. Donate to charity
If you want to leave a charitable contribution to a cause you support, this is where you can enter the amount you want to leave as your legacy. If you enter an amount here, keep in mind you will want to record which organization you want the funds directed to in your will.
Do I need my own life insurance policy if I have one from my employer? The short answer: yes. If you have a policy with your employer, you may not consider an individual life insurance policy. However, typically, your employer’s life insurance policy only covers you for as long as you’re an employee there. So, if you live into retirement, you won’t have that benefit anymore.
Once you fill out the calculation tool, you will see your estimated need amount at the bottom. From here, it’s a good idea to talk it over with your local, independent insurance agent.
Disclaimer: This article is not expert advice. The analysis of coverage is in general terms and is superseded in all respects by the Insuring Agreements, Endorsements, Exclusions, Terms and Conditions of the Policy. Some of the coverage mentioned in this material may not be applicable in all states or may have to be modified to conform to applicable state law. Some coverages may have been eliminated or modified since the publishing of this material. Discounts may not be available in all states. Limitations and conditions may apply. Premiums will be based on benefits chosen. Please check with your local Independent Auto-Owners Insurance Agent for details." *Products referenced may not be approved/available in all states. Limitations and conditions may apply. Premium will be based on benefits chosen and policy rates available at time of application. Copyright Auto-Owners Insurance Company © 2021. All Rights Reserved.