# How Can I Calculate My Life Insurance?

Many individuals are unsure of the best place to begin when looking into life insurance. To what extent do you require this? To what extent should you insure yourself? Which firm should you trust? All of your questions, and more, will be answered in this comprehensive guide. When you know how much life insurance you’ll need, you can compare life insurance quotes and find the best policy at the most affordable price.

The amount of life insurance you need is determined by many variables, such as age, health, way of life, and financial responsibilities. Assuming you are in good health and relatively young, you may only require a modest death benefit from your policy.

Nevertheless, if you have dependents, you’ll need adequate protection to supplement your earnings and pay for childcare and further education. A decline in your financial or health status could necessitate a review of your current coverage. Ultimately, working with a financial expert who can help you examine your particular requirements is the best way to figure out how much death benefit you need.

On that note, let’s take a look at how life insurance can be calculated.

## Rule Of Thumb Approach

This is the simplest approach to determining a person’s life insurance requirements. It analyzes the amount of insurance protection a family would need in the event of the death or disability of the breadwinner. The basic rule of thumb is obtaining insurance for a sum of 6 to 8 times one’s annual earnings. To arrive at a more precise number, you can utilize one of two alternatives to this method:

• The primary breadwinner’s gross income should be multiplied by five. Then mortgage payments, any outstanding debts, final expenses, and any unique financial obligations should be added on top of that (i.e., college expenses).
• Pay 6% of the primary breadwinner’s salary in annual premiums and an additional 1% of the primary breadwinner’s salary for every dependent.

Even though this method can give you a ballpark figure for how much life insurance you might need, it doesn’t account for specifics like the age of the policyholder, the number of people dependent, or whether or not there are two breadwinners.

## Income Replacement

In this method, we evaluate the necessity for insurance by applying the concept of human life value. According to this idea, a human being’s worth can be calculated by discounting their expected future wages to the present. The sum to be covered is equivalent to the sum the insured can expect to earn till retirement.

This figure is calculated using a variety of variables such as the insured’s present after-tax revenue, projected income development, a discount rate calculated after taxes are taken into account, as well as the number of years they are expected to continue working. An individual’s actual insurance requirement can be determined after taking into account several potential changes to their income, including:

• Since family support costs do not include money spent on one’s personal care, the present value of one’s earnings should be reduced to account for this.
• Upon the insured’s passing, the premium payments are not given to the beneficiary(ies) to use as a source of financial security. Due to the discontinuation of premium payments, this cost need not be factored into yearly income calculations.
• It’s important to include future survivor payments from Social Security when determining how much money the family will need to keep living the way they do now.

Life insurance premiums can be estimated using an income replacement method by projecting out future payments depending on the insured’s earnings before taxes and factoring in growth rates, discount rates, the insured’s employment tenure, and the number of dependents.

## The DIME Method

To use this approach, you must add up:

• Current debts
• The sum of your annual income times the length of years your loved ones will rely on it
• Exactly how much of your mortgage do you still owe
• Financial commitment to your children’s education

In addition to your mortgage, you should add any other loans with a cosigner, such as those for a vehicle or schooling, for which the cosigner would be legally accountable in the event of your death. Credit card debt is one example of a personal loan that can be paid off with savings. It’s important to consider potential salary increases and how many working years you still have left.

If you’re still having trouble calculating your life insurance requirements, it’s best to get in touch with an expert, and who is better than Franklin Life & Annuity for it? We are experts when it comes to life insurance. Whether you need family life insurance Houston Texas or last expense insurance in Houston, Texas, we offer it all. Contact us to learn all about it.