Information On Life Insurance

Multiple of Income

This method uses the approach of a multiple of your annual income typically ranging from five to eight times your annual income. This is one of the oldest and best known methods to determine how much life insurance you need, as well as one of the easiest to use. It’s also the most frequently mentioned by financial columnists in consumer publications.

While simple, this earning-multiple method misses a range of important factors. For instance, it ignores household demographics, post savings, social security offsets, housing expenses and taxes among others. It also ignores expected life changes and individual preferences about sustaining the living standards of survivors.

Cover of Debts

This entails buying only enough life insurance to cover debts such as mortgage, student loan bills or outstanding car notes. The issues are similar to the issues for the multiple income approach shown above in that it misses a whole range of factors, such as not considering any future debts such as child care or college education costs. This method is also too simplistic to provide any real value.

 Human Life value Concept

The human life value concept deals with human capital. Human capital is a person’s income potential. We all have a human life value. In wrongful death litigation, human life value is measured daily in court. However, the litigation value tends to be significantly different. Insuring human life is the primary purpose of life insurance. The human life value concept goes beyond numbers and considers the entire impact caused by the loss of a human life and the value to a person’s loved ones.

The human life value concept estimates the insured’s earning for the period of time replacement would be needed. When estimating earnings, future increases in salary may be considered and an average annual salary used. Whether or not to include growth of earnings has a significant impact on the amount of coverage that will be needed.  This can be a good means to determine how much life insurance you actually need. Qualified individuals can help you out.