What is a common formula for calculating life insurance? – InsuranceNewsNet

CHICAGO, 07 June 2022 (GLOBE NEWSWIRE) — Life insurance can ensure beneficiaries get the financial support they need to replace a policyholder’s income and cover expenses after they’re gone. However, those considering a life insurance policy may wonder how much coverage they need. Read on to learn how to calculate life insurance needs and some types of policies to choose from.

How to calculate life insurance

A common formula for calculating how much life insurance someone needs is to multiply their annual income by 7 to 10 times. This number can give the policyholder a target amount for the life insurance payment he needs. But keep in mind that this amount can be affected by the type of policy someone chooses, along with how much they want to pay in premiums.

Types of life insurance policies

Here are some different types of life insurance policies and how policyholders can figure out how much coverage they need for each:

term life insurance

Term life insurance is a life insurance policy that will provide beneficiaries with a death benefit payment if the policyholder dies while the policy is active. Term life insurance is available in terms ranging from 10 to 30 years and comes with affordable monthly premiums.

In general, multiplying the policyholder’s salary by 7 to 10 times is a good rule of thumb for term life policies. But other factors someone may want to consider are how much of the premium payment fits into their budget and how many dependents they’ll want to secure financial support for.

If the policyholder wants a cheaper premium, they can opt for a policy with a lower death benefit amount. On the other hand, if someone has multiple dependents, they may want to target a higher death benefit amount than the calculation given by the above formula.

whole life insurance

Whole life insurance is a permanent life insurance policy that offers coverage for life. This means the policy remains in force as long as premiums are paid and loved ones receive a guaranteed death benefit payment when the policyholder dies. Whole life insurance also comes with a cash value growth component that can help the policyholder build wealth over time.

Determining how much whole life coverage is needed can start with the same base calculation as term life policies. However, since whole life policies also build savings while the policyholder pays their premiums, they may want to consider adding more or less to this number depending on their life insurance policy savings goals.

Policyholder plans for their estate and savings may change the amount of whole life policy coverage they choose. More coverage will mean higher premium payments, a factor to consider in overall calculations and budgets.

final expense insurance

Final expense insurance is a permanent life policy designed to cover expenses at the end of life. This type of policy will generally give beneficiaries a smaller death benefit payment than whole or term life insurance and often comes with more affordable premiums.

Calculating a final expense insurance policy will deviate somewhat from the typical life insurance formula, as this type of coverage is only intended to cover costs associated with funerals, memorials, cremations, and other related expenses. Final expense payments will generally top out at about $50,000and the correct amount of coverage for the policyholder may depend on their funeral and final plans.

The bottom line

When calculating how much life insurance coverage a policyholder will need, 7 to 10 times their annual income can be a good general estimate. But as the policyholder considers his unique needs, he’ll begin to understand how he can adjust that formula. As long as the policyholder researches which policy works for him and his budget, he can come up with a solid estimate of the right coverage for his loved ones.

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Laura ZimmermanMarketing director
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This content was issued through the press release distribution service at Newswire.com.


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Source: Life of Faithfulness

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