Figure out how much life insurance you might need with a little help from these calculators.
I've had a few incidents in the recent past that remind me how important it is to make sure I have adequate life insurance. One of those items was the lapse of my universal life policy. The other thing was a car accident. While the car accident wasn't that bad, it still made me think. What if the next car accident is awful, and someone dies?
Even though I've not enjoyed the inordinate amount of time I've spent dealing with insurance companies lately, it does have me thinking about my life insurance needs.
Do I have enough life insurance coverage? Should I get more?
Life Insurance Calculator
If you want a general idea of how much life insurance coverage you should have, you can use the calculator provided by State Farm. It's actually a pretty fun calculator, with a little animation to keep things interesting. You can keep track of where your life insurance needs stand with a little counter in the upper-right corner. At the end, you are offered a final number. Here are some of the items that the calculator considers when creating a number for you:
- Your demographic information (including gender, age, and marital status)
- Housing situation (including the size of your mortgage)
- Dependents (including whether or not you plan to help with college)
- Amount of debt you have
- Assets that might offset what you need
In the end, it appears that — at least according to State Farm — I don't have enough insurance coverage. However, the calculator doesn't take into account whether or not your significant other can earn money, and that has an impact as well.
After completing the calculator, and reviewing my coverage, I remain satisfied with it. The payout would be enough to pay off the house, and the student loans, as well as the car loans. It would provide a little bit for my son in terms of college. My husband works, so replacing my entire income isn't as important as it would be otherwise. Additionally, he would likely get child care help by moving closer to his family, where his parents and sister would be more than happy to help out.
The policy on my husband isn't as big as the policy on me, but that doesn't bother me. His payout would cover the car loans and student loans, and still have leftover that I would probably just put aside for my son's college education. I make enough that the loss of my husband's income isn't much of an issue.
In the end, how much life insurance you need is about your personal circumstances and what you're comfortable with. The important thing is that you think about what would happen if you passed on, or if your life partner passed on, and you prepare for that possibility — no matter how unpleasant that might seem.
Laddering Your Insurance Policies
Once you know how much insurance you need, it's possible to choose a policy that works for you. One of the ways you can do this is with the help of a strategy called laddering. Insurance Ladders offers a look at how you can make your coverage more cost-effective through a laddering strategy that you might recognize as being related to CD laddering. The idea is that smaller policies can provide you with some savings.
Insurance Ladders takes information about your situation, demographics, and any partner you might have, and estimates how much you can save with the laddering process. You can then compare various options. I saw on the Insurance Ladders site that my current insurer is listed as one of the low-cost un-laddered policies. Then Insurance Ladders offers a look at specific ways to use laddering to save money on life insurance.
It's an interesting concept, and one that might bear a little more research. I'm not sure I agree with the idea that I need $1.1 million over 30 years, though. As I mentioned before, I'm pretty satisfied with my level of coverage. But I like the idea of laddering by breaking up my coverage. It doesn't matter a whole lot right now, since I'm set with a 30-year term life policy and a universal life policy, but I kind of like the idea.
Are you happy with your level of insurance coverage? Or do you need more? What do you think of the possibility of laddering?