We’ve been asked many times for a condensed death benefit calculator that gives advisors and their clients a quick estimate of life insurance needs. I’ve streamlined an estimator to 8 entries, down from the usual 13 to 21 found in most online calculators:
Below this entry, I assume a long-term inflation rate of 3% for simplicity.
I eliminated items found in many calculators:
Death benefit needed for income replacement is calculated based on the above input.
Next you’ll enter:
6&7. Other life insurance in force
8. Any liquid non-retirement assets readily available
Additional life insurance needs (in the form of Term life insurance) for income replacement is calculated for you.
I don’t consider retirement account assets to reduce the amount of life insurance necessary here for two reasons:
Final expense needs.
Because I am a proponent of permanent life insurance for most clients, that is what this field represents. This is additional life insurance that wouldn’t be covered under income replacement (so can’t be covered by term), and coverage that most people want to have at the end of life, whenever that is. This is where your entry for Existing Whole life or Universal life factors in.
At LLIS, we believe most clients desire some life insurance at death to cover things like funeral expenses and final medical bills, and to provide their survivors with a “cash cushion” for living expenses, removing the need to make important financial decisions during this stressful time. So the Final expense needs calculation is based upon compounding $50,000 for final expenses in today’s dollars to age 85 (the generally accepted life expectancy), when the client is likely to need this additional benefit.
Mark Maurer, CFP®, President & CEO