Discuss the two most commonly used ways to determine a person’s life insurance needs.

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SPF Insurance Life Insurance Needs Calculator

Ideally, we’d like a life insurance needs calculator that mixes both Income Replacement and Capital Needs into a single tool. That is what the SPF Insurance needs calculator does.

Life Insurance Need Examples

Here are some example situations we get a lot. Using these examples, you can learn how the final life insurance needs were calculated. These are all based on clients here in California.

Starting a family is a big change and requires a lot of thought and planning to ensure that the transition from couple to family goes smoothly. Setting up a spending plan (aka budget) is the first step. Then getting the right maternity health insurance in California and putting in place life insurance are the next steps.

The maternity insurance is fairly obvious. Having a baby can be expensive unless your health insurance provides good maternity benefits. Life insurance is also important because of what could happen to either person, and is only possible if done before the pregnancy occurs.

Our young couple is Alexandra (age 37) and Manny (age 40). They both work full time and earn $35k and 48k. They own a home with a $410k mortgage, but have no other debts. They have saved $22k to help them pay for the baby and a 6-month maternity leave (Alexandra will go back to work after the leave).

After entering the data into the SPF Need Calculator for Manny we get that he needs to have $726,253 in life insurance. For Alexandra, the calculator determined she needed $340,830.

A key issue for Alexandra and Manny was wanting to make sure their baby would be able to go to college. When they added this option in the need calculator their life insurance needs were: Alexandra = $523,185 and Manny = $908,607. The college costs add just over $180k to the life insurance needs.

In this example, our couple (Rob and Whitney) are both 45 years old and have no children. They have retirement savings of $85k, along with regular savings of $8k to cover emergencies.

Rob is a contractor and makes $70k, while Whitney left a corporate job to become an author and is just starting out, so her income is $10k. Rob built their home 12 years earlier and they own it without a mortgage. How much life insurance do they need?

When we plug their numbers into the Need Calculator we see that Rob needs to have $864,266 in protection, while Whitney needs are $0 (when the calculator shows a negative number the need is $0).

We can see that Rob’s income is very important to the couple, and we should expect his need for life insurance will be larger than Whitney’s. However, Whitney’s contributions to the household are not “worthless.”

In the next section, we’ll see how to handle situations where there is a large difference in income between the spouses.

Does A Stay-At-Home Spouse Need Life Insurance? 

This is a great question and one that gets overlooked many times.

In many families, if one spouse is the main breadwinner and the other spouse stays home to take care of the children, the belief is that if the working spouse has life insurance, the family is protected. However, this overlooks the true value that your stay-at-home parent provides, and the cost to replace those services if he/she were no longer here.

As we’ll show you, it makes sense to have some amount of life insurance protection for the stay-at-home spouse.

If the at home parent were gone, what services would the working spouse have to take on or pay for.  This list is some of the common items.  The decision to do them yourself or pay to have someone do them is your choice.

The hardest ones for a working spouse to take on are the day care and the transportation activities during the week.  If your career requires travel, then almost the full list of services will need to be replaced while you are away from home.

According to Salary.com, the total financial value of a stay-at-home spouse is $143,102. You can use their tool to determine the stay-at-home spouse “income” value in your family. The tool allows you to select the services and hours, along with adjusting the costs depending upon where you live.

 To use the tool, just click on the infographic.  

Once you’ve determined your stay-at-home income value, use the SPF Life Insurance Needs Calculator above to determine how much life insurance the at home spouse needs.

In our previous example using Rob and Whitney, if we adjust the income that Whitney makes ($10k) by adding in the “jobs” she handles for the couple, we get an income of close to $50k. Using this income in the Need Calculator, we see that Whitney needs $162,094.

Now that you've determined how much life insurance you need to protect the ones you love, you're ready to move on to Step 2.

See below

Karen Reeves

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How Do You Get Life Insurance?

Here are five steps you must follow when buying life insurance.

1. How much life insurance do I need?         ---- You're Here Now ----

2. How long does it need to last?                    ---- Next Step ----

3. What life insurance ratings will you get?   Standard, Preferred, Preferred Plus, or Sub-standard?

4. Get life insurance quotes?

5. Select the plan and apply.

The next step is to figure out how long the insurance needs to last, so go to “What Kind Of Life Insurance Do You Need,” and how long does it need to last.