es.
The "debts" amount represents debts that your family desires to pay off at your death. Normally, it does not include items that make up the "annual living expenses"-e.g., mortgage payments, car payments. However, if you decide that you wish to use insurance proceeds to pay off such expenses, then add in the amounts you estimate will be needed to pay off such debts.
As for future education expenses, it is suggested that you use an annual cost of $20,000 per child, per year, for the sake of simplicity.
Line 6: Determine the "Interim Insurance Proceeds Amount"
Subtract the "future expenses" on line 5 from the "proceeds needed" amount on line 4. This is the amount of insurance you will need to buy on your life. The amount will be further adjusted.
Line 7: Subtract the "Assets That Can Be Sold and Other Insurance"
For line 7, determine the amounts that represent assets that your survivors could liquidate to pay future expenses. Do not include any assets your survivors will be using to produce income that you included in "other sources." Also, note that you should include insurance payments and pension death benefits here, and not on the line for "other sources." This is because such proceeds will represent one-time payments, and not sources of annual income.
Line 8: Determine the "Total Insurance Needed"
Subtract the "assets that can be sold and other insurance" on line 7 from the interim insurance proceeds amount" on line 6. This is an estimate of the amount of insurance coverage you need.
Life Insurance Worksheet
|1. Annual income needed.||$_____________|
|2. Subtract other annual income sources:|
|Salary of surviving spouse and other family||$_____________|
Estimated earnings on investments
|Total other annual income sources||$_____________|
|3. Subtract total of line 2 items from line 1||$_____________|
|4. Amount of proceeds needed (divide line 3 by 4%, 5%, or 6%)||$_____________|
|5. Lump-sum expenses:|
Final medical costs
Estate administration and probate costs
Federal estate and state inheritance tax
Emergency living expenses fund
Debts to be paid off
Other lump-sum expenses
Total lump-sum expenses:
|6. Interim insurance proceeds needed|
(add line 4 and total of line 5 items)
|7. Assets that can be sold and other insurance|
Employer-provided group life insurance
Other life insurance.
Death benefit from pension plan.
IRA, Keogh, and 401(K) plan lump sum amounts
Other assets that can be sold
|8. Total insurance needed (subtract total of line 7 items from line)||$_____________|
Term, whereby you pay for coverage for a specified amount of time, and if you die during that time the insurer pays your survivors the death benefit specified; and
- Cash value, usually referred to as whole life, universal life, or permanent life insurance, where, in addition to paying a death benefit, it also provides you with some other redeemable value.
For individuals age 40 or less, a term policy will almost always be less costly than a whole life policy. Although term policies do not build cash values, many are convertible to whole life policies without a physical exam. Thus, a term convertible policy may be a good option for someone who is under 40. There are various types of term insurance, which we will discuss briefly here.
Renewable. Renewable term policy is the most common type of life insurance where the policy renews automatically on a renewable term, e.g. every year, every 5 years, every 10 years, or every 20 years--the most popular renewal term. You do not need to take a physical or verify the fact that you are employed. The premium goes up at the beginning of each new term to reflect the fact that you are older. Most renewable term policies can be renewable until you reach age 70 or so.
- Re-entry. With this type of policy, you must undergo a physical exam after a certain period, or pay an extra premium.
Level. With level term policies, the premium is guaranteed to stay the same over a certain period. This period may be shorter than the term of the policy. Nearly all life insurance bought today is level term.
Decreasing. With 