On this episode of Financial Zen Education….
I show you a basic calculation of how much life insurance you need.
With a family comes Financial Complexity, that evil villain lurking in the shadows. He loves it when you make unforced errors.
You know you need life insurance. But what kind and how much?
Two weeks ago, we discussed what kind – term life insurance. Now I’ll show you the basic calculation to determine how much.
You need enough life insurance to pay off the mortgage, send the kids to college and pay the bills until they’re “off the payroll.”
Current mortgage balance(s) + Present value of college expenses + Present value of living expenses = Total death benefit
For the average family of four living in the Bay Area that’s about $1.5 million.
Warning! The actual calculation is more complicated. It involves advanced financial calculations:
(Don’t let Financial Complexity dupe you into doing these calculations yourself. Or if you do, at least have a financial professional check your work.)
Life insurance exists to replace the income your family would lose if you’re gone. Income that would pay off the mortgage, pay for college and pay for raising your kids. And Once your kids are on their own, you no longer need it.
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