Life insurance calculators walk users through a process called a capital needs analysis--insurance jargon for determining how much life insurance you should have. A life insurance calculator is a great tool to help users determine two main variable factors in case of death:
* How much money is needed to meet immediate financial obligations
* How much money is needed to keep the household financially sound
When buying term life insurance, it's important to purchase enough coverage to ensure your family has the money it needs to cover funeral costs and to maintain their current standard of living.Life Insurance Calculators: What They Ask
Questions asked by these online tools vary, with some life insurance calculators asking for more information than others--a well-rounded survey may provide greater accuracy and a clearer assessment of your term life insurance needs.
Questions from the Life and Health Insurance Foundation for Education's (LIFE) insurance needs calculator, one of the insurance industry's most inclusive needs assessment surveys, include:
* Final expenses needed upon your death* Outstanding debts
* Total mortgage remaining
* Funds needed for your children's' college tuition
* Annual income needed by family members upon your death
* Years income is needed
* Current savings and investments
* Retirement savings
* Value of current life insurance policy
* Spouse's annual income
* Years spouse is expected to continue working
* Spouses tax rate
Social Security benefits are not factored into the life insurance calculator.
Life Insurance Calculators: What It All Means
Life insurance calculators usually segments financial needs into several categories. Here are the most common categories, and the needs they cover.
* Immediate Expenses Incurred at Death: Expenses for funeral services typically run between $4,000 and $10,000. Administrative expenses, or probate costs, to handle the affairs of your estate can cost as much as 5% of your family's assets* Outstanding Debts and Mortgage: Consider auto loans, home equity loans, mortgage, credit cards, and any other debt burden you'd like to lift from your family members' shoulders
* College Expenses: A rough rule of thumb is to figure $25,000 for each child headed to a state college or university, and $75,000 for each child headed to a private college or institution
* Annual Income Needs: Will your spouse work after your death? How much might your spouse earn? How long will your spouse continue working? How much money does your household need to stay solvent? These are questions you should take into consideration when assessing your family's ongoing income needs
* Current Assets: Includes retirement accounts, home equity, personal investments, and checking and savings accounts. However, some life insurance calculators do not consider this information in order to simplify calculations
Life insurance calculators are self-help tools that assess your life insurance and financial needs, and do not constitute professional financial planning. They are best-guess estimates to provide you with an idea of future financial needs and the amount of necessary coverage. When purchasing term life insurance, ask your insurance agent about life insurance calculators.
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