There are several simple methods used to estimate an applicant’s life insurance need.
Let us review these methods along with examples.
The most basic rule of thumb is the Income Rule, which states that the insured’s insurance need would be equal to 6 or 8 times his/her gross annual income.
Example: Ally is earning a gross annual income of $60,000. She should have between $360,000 (6 x $60,000) and $480,000 (8 x $60,000) in life insurance coverage.
The Income Plus Expenses Rule states that the insured’s insurance needs to be equal to 5 times his/her gross annual income plus the total of any mortgage, personal debt, final expenses, and special funding needs (i.e., college, university etc.).
Example: Assume that Fredrick earns a gross annual income of $60,000 and has expenses that total $160,000. His insurance need would be equal to $460,000 ($60,000 x 5 + $160,000).
Example: Assume that Fredrick earns a gross annual income of $60,000 and has expenses that total $160,000. His insurance need would be equal to $460,000 ($60,000 x 5 + $160,000).
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