Question

How do you compute term life insurance?

Answer 1

Answer:

Most insurance companies say a reasonable amount for life insurance is six to 10 times the amount of annual salary. Another way to calculate the amount of life insurance needed is to multiply your annual salary by the number of years left until retirement.

Step-by-step explanation:

Answer 2

To calculate your life insurance coverage needs:

1. Add up your assets
Find the sum of your post-tax income and any liquid assets, like life insurance policies you already own, current investments, and future assets like social security benefits.

2. Add up your debts and financial obligations
Account for your yearly living expenses and debt payments and multiply them by the number of years your family would need support. Make sure to include future financial obligations, like college tuition.

3. Subtract your assets from your debts and financial obligations
The resulting number is the coverage gap — the amount of money your family would need to be financially comfortable in your absence, which is the minimum amount your
death benefit
should be. Your policy’s term (i.e., the amount of time your coverage lasts) should last as long as your family’s financial dependence requires.

The death benefit is paid as a lump sum, but your beneficiaries shouldn’t use it all at once. Much of it can be invested, and the rate of return can provide additional income to make the benefit last longer — but you’ll also want to consider the inflation rate over a 20- or 30-year term.

Work with a financial advisor to decide how to maximize the value of your death benefit and prepare your beneficiaries to take on the financial responsibility of the large payment.