Life Insurance Calculator

How to Use a Life Insurance Calculator Upon purchasing a life insurance policy, people often wonder how much life insurance they really need. Deciding on how much life insurance to buy can be daunting. It’s a good thing there is a life insurance calculator as it makes decision simpler and more accurate. This tool allows you to determine whether you have enough coverage to offset your current and future expenses. Here is a step-by-step procedure on how to use a life insurance calculator

The important factors

1. The cash equivalent of all your assets, including real estate, precious gems, savings and other financial investments.
2. Your annual salary
3. Monthly expenses. These include utility bills, rent, children’s allowances, etc.
4. Immediate expenses in the event of your untimely death. These include medical and burial expenses.
5. The amount of your children’s tuition fees that you are expecting to pay
6. Estimated miscellaneous expenses to be used for purchasing cars, rest houses, home improvements, vacations, etc.
7. Current inflation and tax rates.

How to determine the amount of life insurance needed

A life insurance calculator works this way; create two columns on a piece of paper and label them with “inflow” and “outflow”, respectively. Under the inflow column, list all the items you have in numbers 1 and 2 in the abovementioned important factors. All real assets and your annual salary should be there. May it be art works, real estate, or account receivables, anything that you own that has value should be included under that column. To approximate the total salary you would receive in your lifetime, simply multiply your annual salary by the number of years remaining before reaching retirement. We will not be taking taxes and inflation rates into account to make this illustration simple.

Meanwhile, place all expenses under the outflow column. Make sure that all possible cash outlays from now until your approximated time of death should be placed here. Hence, monthly expenses should be multiplied by 12 and then by the number of estimated remaining years.

After you’ve had both inflow and outflow sorted, get the grand total of each column. These figures serve as a rough calculation of the money you own, and the money you will be spending in your lifetime.

Finally, simply get the difference between the two columns. If the amount in your inflow column is greater than that of the outflow column, you’re practically out of harm’s way. Otherwise, this gap can be closed through a life insurance policy.

Summary

Though a bit flawed, a life insurance calculator is able to loosely depict a scenario of one’s ultimate financial condition by using current assets and expenses. This is a decent way to have an idea of how much life insurance you really need. GP