It’s not as complex as it is often made out to be, but I want to tell you why I think this simple method is best.
My brother passed away when he was 56. He was a farmer with 6 children. I had taken care of his insurance for many years, but I never wanted to be “pushy”. Well when he got pancreatic cancer it was too late and I regretted it. His family was strong and resourceful, and they did okay, but I could have made it much easier for them. I vowed to never again be afraid to make sure people knew how much life insurance it really took to take care of their family.
I also had a client who purchased more insurance than they could afford. Times got a little tough and they didn’t make their life insurance payments and the policy cancelled. You guessed it, they too became ill and passed away. I learned to not let people’s desire to do right by their family make them spend more than they could truly afford.
Lastly in my younger days I wrote a computer program to determine life insurance need. It was very complex and you could choose the inflation rate, investment returns, what you wanted set aside for many different family needs and even estimated Social Security survivor payments. Several large brokers used it for a while…but I didn’t use it. It was complex and the smallest change to an input would change the estimated need drastically. It just wasn’t realistic for most people.
So I finally settled on a rule of thumb that has served me well for over 25 years.
Your Annual Gross Income X 10
+ Your Debt
====================
= Your Life Insurance Need
For example: If I earn $75,000 per year and have a $200,000 mortgage and $20,000 car loan…
$75,000 X 10 = $750,000
$750,000 + $220,000
=================
$970,000 Life Insurance Need
That may sound like a lot, but if you think about it, it barely replaces what you will earn in just 10 years. It will keep your family comfortable, but it won’t make them rich. And if you give us a call we can get quotes from over 15 life insurance companies. You’ll be shocked at how affordable it is!
