Life is complicated, insurance doesn't have to be.
Read time: 4.5 minutes
You know all those inspiring songs and speeches that
encourage you to live like it’s your last day on Earth? Turns out
that’s a good mindset for calculating how much life insurance you
And, to make it easier, we created a life insurance
needs estimator to walk you through the many factors to consider.
The fields in our Life Insurance
Needs Estimator are listed by importance. So, as you fill it
out, pay special attention to the first three fields: paying off your
mortgage, replacing your income and final expenses.
The other fields are good to consider but not a necessity.
1. Pay off your Mortgage
Keeping with the “if I die tomorrow” mentality, enter in the
amount you owe on your mortgage right now. This eliminates a huge
financial burden from your family.
What if I don’t own a house yet? Or, what if I’m
planning to move?
If you’re planning on moving or buying your first home, you
should still consider including a mortgage amount on the estimator. Since
you don’t have an exact number for your mortgage, you will need to
estimate it. Here are some ways to estimate an amount for your future mortgage:
While you may not end up using that full mortgage amount to
buy your future home, it’s better to be a little overinsured than
underinsured. Those extra funds can still benefit your family in the
other areas the estimator includes.
Should I include the mortgage of my second home?
Generally, no. The priority for your policy should be your
Second homes aren’t usually considered a necessity. But, it’s
your policy and if your second home is important, you can certainly
2. Replacing your
For this field, enter your current
annual income. This is not the same as household income.
This is just your individual, annual income.
figure out the number of years to replace your income,
consider the number of years before you retire. If you’re 30
today and you expect to retire at 60 years old, you will want
to replace your income for the remaining 30 years.
If you’re still in school or planning on a big career change,
you can enter an estimate of your annual income. Look at projections
and estimates of earnings for the job you hope to have. Consider
where you plan to work, as that may affect your income.
Read more: The
Gift of Life Insurance for Children
3. Final costs
This field includes the expenses that go into funeral and
burial. Specifically, things like the cost of the funeral home,
flowers, programs, an officiant speaker, the burial site, cemetery
plot and anything else you may want at your funeral. You will see
that our estimator states the typical funeral costs around $10,000.
That’s a good number to put in.
Reasons to consider a higher amount include inflation and
additional expenses for funeral and burial arrangements. If cremation
is a potential option, consider an amount lower than the suggested $10,000.
4. Pay for your children's
This is the hardest field to
calculate because there are so many unknowns. It’s common to
leave this field blank unless you know you want your child
to go to a certain school. If you want to include an amount,
but don’t have a school in mind, you can always base it on
your experience and factor in inflation.
Is Life Insurance Taxable? Here’s What You Need to Know
5. Pay off your debts
For this field, think of any outstanding debts beyond your
mortgage that may be a burden on your family. For example:
6. Donate to charity
If you want to leave a charitable contribution to a cause you
support, this is where you can enter the amount you want to leave as
your legacy. If you enter an amount here, keep in mind you will want
to record which organization you want the funds directed to in your will.
Do I need my own life insurance policy if I have one
from my employer?
The short answer: yes.
If you have a policy with your employer, you may not consider
an individual life insurance policy. However, typically, your
employer’s life insurance policy only covers you for as long as
you’re an employee there. So, if you live into retirement, you won’t
have that benefit anymore.
Whole Life Insurance vs. Term: What You Need to Know
Once you fill out the estimator, you
will see your total estimated need amount at the bottom. From here,
it’s a good idea to print it out, or save it, and talk it over with
your local, independent insurance agent. They will show you different
life insurance products and help you find a suitable fit for your
family and budget
*Products referenced may not be
approved/available in all states. Limitations and conditions
may apply. Premium will be based on benefits chosen and
policy rates available at time of application.
Disclaimer: This article is not expert advice. The
analysis of coverage is in general terms and is superseded
in all respects by the Insuring Agreements, Endorsements,
Exclusions, Terms and Conditions of the Policy. Some of the
coverage mentioned in this material may not be applicable in
all states or may have to be modified to conform to
applicable state law. Some coverages may have been
eliminated or modified since the publishing of this
material. Discounts may not be available in all states.
Limitations and conditions may apply. Premiums will be based on
benefits chosen. Please check with your local Independent
Auto-Owners Insurance Agent for details."
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