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Life Insurance Needs
This calculator is designed to determine the amount of money needed for life insurance. The two methods of calculating life insurance needs will result in different estimates. The human life approach is more sensative to the age of the insured, whereas the capitalized earnings approach will be sensitive to the expected annual earnings rate of return and inflation.
Expected retirement age
Expected annual inflation rate (%)
Expected annual inflation rate of income (%)
The average increase in wages has historically been 1 percent above the general inflation rate. However, this number is an average.
Expected annual earnings rate (%)
Pre-tax current annual gross income
Percent of income used to pay taxes (Federal & State)
Percent of after-tax income used to pay for expenses unique to insured
Family needs in annual pretax dollars
Family needs is an estimate based on current annual gross income. This amount might be 70% to 80% of gross income, in the same manner as the wage replacement ratio with retirement funding. However, in some cases, this amount could exceed 100% of gross income. For example, if the primary income earner has significant benefits provided by work, such as housing and transportation, family needs may be more than gross income.
Life Insurance Needed
Human Life Approach
Capitalized Earnings Approach
1) We have not included the needs based approach since it generally understates needs.
2) The capitalized earnings approach does not take into consideration the number of working years. Rather, it capitalizes the earnings based on the spread between the earnings rate and the inflation rate.
3) From numerous applications of the these methods (and the needs approach) we have developed a benchmark metric of 12-18 times gross pay as the general guide for life insurance needed.