“Erica, how much insurance do I need?” I get asked this question all the time. Well, there are a few different factors to consider. First, you have to figure out what amount of money your family would need if you were no longer here. You can do this in two steps. Step one, calculate what your cash needs would be. These are things that you would need liquid cash to pay for in a relatively short period of time, which includes things like paying off personal debts like credit cards, car loans, line of credit balances, paying off your mortgage, and paying for final expenses like funeral costs, probate, etc. Do you have childcare or home costs that need to be taken care of, and education savings/costs that must continue? Include those in your cash needs as well. Next, you have to figure out what your family’s financial needs are. Without you there, your income is lost. Can your family continue to function without the support of your personal income? If not, how many years do you need to replace your income for? You can use a few different methods to calculate your income replacement. The two most commons ways involve multiplying your current income by the number of years you would replace it for. Another method is figuring out what lump sum amount of money you would need in order to generate interest that equals to your annual income. Step two, add up any of your assets that would be cashable, any income that would be generated, and any other insurance you have – then deduct it from your family’s financial needs. The difference between your needs and your assets would provide you with your insurance needs. Customize this calculation by adding in any factors that are unique to your family.
What are your insurance needs? Use the calculator to find out!