How Much Am I Worth Dead?

How Much Am I Worth Dead?

How Much Am I Worth Dead?

In previous articles I've mentioned the importance of having "enough" life insurance in force to provide for your family. In this article we will explore the best way to calculate how much term life insurance coverage to buy.

There are many ways to figure out how much term life insurance you need. There are web based financial calculators that you can use, as well as manually tallying up your liabilities and buying coverage to eliminate those upon death, or amounts solely to cover burial expenses, etc. The list goes on and on. All of the methods are valuable and can give a fairly accurate estimate about how much coverage one needs to make sure that their loved ones are taken care of financially.

One method that I am partial to and use in my business when the client is open to it, is to calculate the economic loss that a premature death would cause. This is known as "human life value." For the sake of this article I will focus only on the financial aspect of loss, not the plentiful other qualities that make up a persons value, which would be missed if they were to die.

Calculating this value is remarkably simple. For example, let's assume our client is a reasonably healthy, 45 year old male. He currently earns $100,000 per year and is planning to retire at age 65. If we multiply his current salary, $100,000 times the 20 years left until retirement, then the gross value is $2 million. Once we know our gross amount of coverage, we then subtract out the taxes he would have paid, and add in the anticipated cost of health insurance for the family, since his benefits cease once he dies.

In most cases, this number will be much higher than the client had anticipated, and we will then perhaps discuss other assets he owns which he would leave to his family which will assist them financially.

Finally, it is important to know how much a person is willing to pay for term life insurance. In our example, It is important that the premium not be so high that he would have to terminate his coverage if his financial circumstances changed.

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