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Here are Useful Rules of Thumb:
* The Income Rule -
Multiply your gross annual income by 8 for a rough
estimate of the amount of life insurance you will need.
* The Income Plus Rule -
Multiply your gross annual income by 6 and add it to any
mortgage and personal debts, funeral expenses, cost of
college and other one-time expenses.
For a more thorough estimate, follow these steps or use
our Life Insurance Calculator.
1. Estimate your family's total monthly living expenses. Adjust for changes
resulting from your death.
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2. Estimate what monthly income, if any, your survivors will have. This could include spouse's income, investment income and Social Security payments, for example.
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3. Subtract the estimated monthly living expenses from the estimated monthly income. Multiply the shortfall by 12 for the annual shortfall.
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4. Multiply the annual shortfall by the number of years until your children reach adulthood or until your spouse will retire.
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5. This is the approximate amount of life insurance you will need to replace your income.
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On top of this amount, you may need to cover costs such as medical bills, funeral expenses, college expenses or a mortgage. Add these costs to the amount you need to replace your income. This is the total approximate amount of life insurance you need.
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