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# How much life insurance do I need?

We have no children, but we do have a home mortgage. Other than that, no debt, however, so is life insurance based on those types of factors? Or, is there a simple equation to figure out how much may be needed?

Jan 10, 2012 by eve from Westminster, CO

Hi Eve, There are several ways to figure out how much life insurance a person needs. One method you could use is:

Add: - How much is your mortgage balance? - Total amount of any existing debt (school loans, credit cards, other loans, cars, etc)?

MINUS - Total amount you have saved (liquid assets)

= ANSWER Part I Now, you need to figure out if all of your debt was paid off, how much money would you need on a monthly basis to live (include food, clothing, school, childcare, etc) Multiply the above figure by 12 (annual figure) and divide this by .06 (an assumed rate of return)

Add to the above "ANWER PART III" a dollar amount for children's college savings if you plan to save for college

For example, mortgage balance of \$500k and debt of \$100k minus \$50k liquid assets = \$550k (ANSWER Part I).... Need of \$5k/month = (\$2k x's 12 divided by .06 = \$400,000 = ANSWER Part II)... Now add, \$50k for college savings. Therefore, ANSWER Part III = \$450,000 So, the total amount of insurance is \$550,000 + \$450,000 = \$1,000,000 This is just an idea of how to solve for how much insurance you need. You can always look for calculators online or speak with a professional like myself.

Melissa Levin, CFP®, CFS CA Insurance Lic #0C56086 714-547-8787

Due to industry regulations, the advisor may not post additional reply comments. If you would like to contact the author, please email her at Melissa.Levin@lpl.com. Melissa Levin is a LPL Registered Representative with, and securities offered through LPL Financial, Member FINRA www.finra.org /SIPC www.sipc.org The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

For starters, you should have enough insurance, preferably term insurance, to pay off the mortgage, pay funeral expenses, and provide a small liquidity cushion. Beyond that you can add amounts for supplementing a retirement nest-egg, or other wants or needs, should one of you meet an unfortunate and untimely end. The formula is this: "If I die, what do I want to happen, and how much will that cost?" Then, ask how long do you need that protection for?

The best way and simplest way to ascertain the total amount of life insurance coverage you need can be based on your debts, replacement income for surviving spouse, and funding of kids education. In my 20 years the most effective financial planning tool that I have used is the FINANCIAL NEEDS ANALYSIS QUESTIONAIRRE to come up with the best possible answer on how much life insurance to own.

First, in cases like your's I like to make sure that should either partner die unexpectedly, that there is enouh money to pay off the mortgage and any debt and provide enough extra to offset the loss of income.

There are two ways to calculate the amount needed. There is what I call the "quick and Dirty" approach. With this we just assume that an amount of 8-10 times income is a sufficient amount fo insurance.

The second way is more involved. It adds all the assets, adds all the liabilities, calculates future needs and comes up with the amount fo insurance. There are some readily accessible free calculators available to use on the internet. Here is one http://www.bankrate.com/calculators/insurance/life-insurance-calculator.aspx

Either way, I recommend that you find a "live" and local independent insurance agent near you. "Live" because if you deal with one of the internet only shops, you won't pay any less, you will just get less service and you never know if that internet only person will still be there in 3 months, let alone 3 weeks.