Life Insurance Policy Calculator

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Life Insurance Coverage Calculator

Recommended Policy Amount

function calculateInsurance() { var income = parseFloat(document.getElementById('annualIncome').value) || 0; var years = parseFloat(document.getElementById('yearsNeeded').value) || 0; var debt = parseFloat(document.getElementById('totalDebt').value) || 0; var edu = parseFloat(document.getElementById('educationCost').value) || 0; var funeral = parseFloat(document.getElementById('funeralCost').value) || 0; var assets = parseFloat(document.getElementById('currentAssets').value) || 0; var incomeReplacement = income * years; var totalNeed = incomeReplacement + debt + edu + funeral; var finalCoverage = totalNeed – assets; if (finalCoverage < 0) finalCoverage = 0; var resultArea = document.getElementById('resultArea'); var coverageResult = document.getElementById('coverageResult'); var resultBreakdown = document.getElementById('resultBreakdown'); coverageResult.innerHTML = '$' + finalCoverage.toLocaleString(undefined, {minimumFractionDigits: 0, maximumFractionDigits: 0}); resultBreakdown.innerHTML = "This estimate is based on replacing " + years + " years of income ($" + incomeReplacement.toLocaleString() + ") plus settling " + (debt + funeral).toLocaleString() + " in immediate liabilities, minus your current assets."; resultArea.style.display = 'block'; }

How Much Life Insurance Do You Actually Need?

Determining the correct life insurance policy amount is one of the most critical financial decisions you will make. A policy that is too small leaves your family vulnerable, while an excessively large policy results in unnecessarily high monthly premiums. This calculator uses the DIME Method (Debt, Income, Mortgage, Education) to provide a comprehensive look at your financial requirements.

Understanding the Components

  • Income Replacement: This is usually the largest portion. Most experts suggest replacing 7 to 10 times your annual salary to ensure your dependents can maintain their standard of living.
  • Debt Clearance: Your policy should cover all outstanding liabilities, including credit cards, personal loans, and specifically your mortgage, so your family can stay in their home.
  • Education Funding: If you have children, consider the future cost of university tuition. Calculating this now prevents a future financial burden on a surviving spouse.
  • Final Expenses: The average funeral and burial cost in the US is between $7,000 and $12,000. Including this ensures your family isn't hit with immediate out-of-pocket costs.

Real-World Example

Imagine Sarah, who earns $70,000 per year. She has a $250,000 mortgage and two children she wants to send to college ($100,000 total). She wants to provide 10 years of income replacement.

Calculation:
– Income Replacement ($70k x 10): $700,000
– Mortgage & Debt: $250,000
– Education: $100,000
– Funeral: $15,000
– Total Need: $1,065,000
– Current Savings/Work Policy: -$50,000
Recommended Coverage: $1,015,000

Why Subtract Existing Assets?

Your total insurance need isn't just a gross number; it's the gap between what your family will need and what you already have. If you have significant savings, 401(k) balances, or an existing group life policy through your employer, you can subtract those amounts from your total requirement to lower your individual policy premiums.

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