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HOW MUCH LIFE INSURANCE DO YOU NEED?
You should note that there are many different approaches for determining the amount of life insurance you need to purchase, and among the main ones are;
__ Financial Needs Analysis Method
__ Multiple of Income Approach
__ Capital Needs Analysis Approach
Financial Needs Analysis Method is an approach where you determine how much life insurance you need to provide a sum of money for your survivor's needs of (1) lump-sum and (2) ongoing income needs.
Lump-sum needs may include;
(a) Probate and attorney expenses
(b) Final expenses
(c) Estate taxes
(d) Immediate emergency fund
(e) Payment of outstanding debt (i.e. mortgage, etc)
(f) Short term, immediate expenses such as rent, bills, property insurance, etc.
Ongoing income needs are commonly include;
(a) Funds needed during the readjustment period immediately after death
(b) Income needs from the end of immediate adjustment period to the time when the youngest child becomes self-sufficient
(c) Income needs from the time when the youngest child is self-sufficient until the time when spouse starts receiving social security
(d) Income needs after the spouse starts receiving social security until the initial eligibility for pension.
Multiple of Income Approach is the most simple approach where you determine your life insurance needs based on your current annual income. However this approach omits your current assets and any other income sources that you have accumulated. So this approach may either over insure you or underinsure you.
Capital Needs Analysis Approach is used to determine the lump-sum of money for your survivor needs without touching the capital. You should keep in mind.
