Your financial planning should include a Life Insurance Needs Analysis. Even if you meet with a professional financial planner or insurance agent, you should know how your suggested death benefits are calculated. I've found that customers are happier with their purchases the more they know about them. It may take more talks with clients who know what they want to settle on a deal, but those deals tend to last.
When I sold insurance, one of the most common questions from clients was how much life insurance they might need. As an agent, I had to find a good balance between the ideal number and the cost of the premium. I knew I had to give them enough life insurance to keep their family safe. But if I suggested a premium rate that was too high for them, they would either not buy the policy or drop it later. I always tried to find out about how much money they were willing to spend.
I did write a script for a simple life insurance needs calculator. I thought about a year's salary, funeral costs, debts already owed, and things like college tuition that were planned for the future. Of course, any plan for money should also include money for emergencies, so I made sure to include that.
My estimates of how much life insurance I needed were pretty low, and many financial experts and insurance agents thought I should double them. Even with my careful planning formula, I surprised a lot of families. Every family has different needs, so any formula should just be a place to start talking and thinking.
For example, a family's second car payment may be part of their debt. If one of them died, they wouldn't need that car, so they could stop making that payment. On the other hand, if one spouse didn't make any money, one year's income might not be enough to help the family get back on track.
I think the life insurance needs calculator is a helpful tool because it helps show a picture, which many people like. But it's not the only tool, and it doesn't take the place of doing your own math.
