Term life insurance planner?
Welcome to our term life insurance planner. This is a great tool and a great start to figuring out just how much term life insurance might
be right for your situation. Let's break down the main components to
see how it works. First, we're going on the basis that life insurance
is primarily useful in replacing lost income as the result of a person
passing away. If you think about it, most other uses all tie into this
fact. If the person was guaranteed not to pass away, then life
insurance would not be needed at all! This sounds pretty silly but if
you flip the logic on it's head, the real reason for life is to replace
missing income. Now that we settled that, let look at the components
of the life insurance planner.
First, you'll notice that we enter in the income on a pre-tax basis.
This is the amount of income today. We'll deal with inflation at a
later date. If the insured were to pass away tomorrow, what would be
the immediate income effective for the next 12 months. That's what we
want to enter here.
The next entry is the number of years. This requires a little more
thought and we have entire articles just dealing with how long. Term
life insurance has a fixed period of time which is why it is so
in-expensive. We usually recommend taking children out until early
adulthood...say 22-25 (which should account for college). For a
spouse, it might be a question of paying off the mortgage (up to 30 years)
or taking them out to Social Security.
The next entry is average investment income that can be derived from a
lump sum of money. This assumes you invest all of the money that you
receive. The default is 8% but you can go down to 5% to be more
conservative if you like. Again, this reflects the income stream you
would hope to achieve off of the full lump sum amount of life insurance
The next entry is inflation and the default is 3%. That's probably
not a bad place to start but let's just hope that 3% is the average we can
expect over the next few decades. You can always increase this amount
to be more conservative.
You then hit "Calculate Now" and the term life insurance planner will
generate a base amount of coverage to quote based on. You can always
adjust this amount after you get the quote back to stay within your life
insurance budget. This Planner is really a preliminary or
simplified view of your potential life insurance needs. Everyone has
different financial situations and needs. As licensed life insurance
agents, we would be happy to walk through your particular situation.
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