# How to Estimate Life Insurance Requirements

Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

When it comes to purchasing life insurance, you need to make sure you are purchasing enough coverage to cover all your financial needs upon your death. Read this lesson to learn what methods you can use to calculate your requirements.

## Life Insurance Requirements

When you are ready to purchase life insurance, you will need to decide what coverage amount you need so that all your financial obligations and needs are met upon your death. For example, your life insurance coverage amount will need to pay for funeral expenses, any outstanding debts, any remaining mortgage, and maybe even future financial support for a spouse or children. There are many life circumstances you need to consider, but depending on your circumstances, there are different methods you can use to figure out your life insurance coverage requirement. Read on to see what they are.

## Easy Method

The first method is called the easy method. This method has you multiplying your annual gross income by 70% and then multiplying that by 7. This gives you 7 years of wages at 70%.

For example, if your gross income is \$65,000, then with the easy method, your life insurance requirement is (\$65,000 * 0.7) * 7 = \$318,500.

This method is meant for those with typical families where both spouses work, are in good health, with average debt, and with no more than three kids.

## DINK Method

Now, if it's just you and your spouse, you can use the DINK method. This method has you adding half of all your debts plus funeral expenses. DINK stands for double income, no kids.

For example, say you have a remaining mortgage of \$30,000, a credit card balance of \$11,000, and a personal loan of \$5,000. The DINK method has you adding half of all your debts to your funeral expenses. So, with funeral expenses of \$10,000, your life insurance requirement is \$10,000 + (\$30,000 / 2) + (\$11,000 / 2) + (\$5,000 / 2) = \$10,000 + \$15,000 + \$5,500 + \$2,500 = \$33,000.

## Non-Working Spouse Method

This next method is for those with just one wage earner in the family. This method is called the non-working spouse method. This method has you multiplying the number of years it takes the youngest child to reach 18 by \$10,000.

For example, say you are the only one working in your family, and your youngest child is 3. It will take your youngest child 15 more years to reach 18. So, your life insurance requirement is 15 * \$10,000 = \$150,000.

## Family Need Method

This last method is called the family need method. This is also the most thorough method. It has you calculating your immediate needs upon death, adding it to the ongoing needs of surviving family members, and then subtracting your available assets.

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