An Easy Way to Calculate How Much Life Insurance You Need
NEW YORK - September 9, 2021 - ( Newswire.com )
iQuanti: So you know you need life insurance to help cover your obligations if you pass away. Now the question becomes: How much do you need? You can always use a life insurance calculator to get a general idea, and here some other methods to consider that can help you forecast your options:
Multiply your income by 10 (and add $100,000 per child)
The general rule to multiply your income by 10 is intended to give you a good baseline of coverage for your day-to-day expenses. Some say this rule is outdated because it usually won’t cover things like paying off assets or putting money away for your children’s future education, which is what the $100,000 per child is meant to help cover.
This rule doesn’t apply well for stay-at-home parents with little or no income, but who are considering life insurance to cover things like childcare expenses.
The DIME method
DIME stands for debt, income, mortgage and education, and this method gives you a slightly more detailed estimate than the first. The calculations are as follows:
Calculate the total amount of outstanding debt you currently have (including credit card debt, car payments, loans, etc.) plus an estimate for final expenses.
Multiply your annual income by the number of years your family would need coverage for.
Calculate the amount you need to pay off your mortgage.
Calculate the total amount you will need to cover your children’s college tuition, and/or any private school expenses.
Offsetting with assets
Once you’ve found the total from using the DIME method, you’ll want to also add up all of your assets, which include your savings, investments, and valuables that you would want to pass on to your loved ones. Subtract the total amount of assets from the totals you came up with using the DIME formula to then find out how much coverage you still need.
The bottom line
When it comes to calculating how much life insurance you need, a lot comes down to how much protection you want to provide for your family and loved ones. Even if you’re a great saver without much debt, replacing your income is only half the battle. If the time you’re spending to build financial resources for things like education for your children gets cut short, the right life insurance policy will be able to help make up the difference for them.
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Original Source: An Easy Way to Calculate How Much Life Insurance You Need