Life Insurance Basics-Determining Amount of Personal Life Insurance

2 Basic approaches to determine the needed amount of protection

human life value and needs approach

Human Life Value Approach

-an estimate of what would be lost to the family in the event of premature death of the insured.
-calculates the individual's life value by looking at the insured's wages, inflation, the number of years to retirement, and the time value of money

Needs Approach

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Needs Approach - Determining Lump-Sum Needs
Insurance proceeds paid in a lump-sum may be needed to pay for these expenses

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Bequest

leaving funds to the insured's church, school, or a charity

Needs Approach - Income Needs

-Replacing insured salary or lost services
-Social Security Income "Blackout" Period
-Liquidation vs. Retention of Capital

Social Security Income "Blackout" Period

-is the time during which the surviving spouse and/or children do not receive any social security survivor benefits.
-blackout period begins when the youngest child reaches the age of 16 and end when the surviving spouse qualifies for retirement benefits,

Liquidation vs. Retention of Capital

enough insurance is purchased so that when added to other liquid assets, there is enough to pay income benefits without jeopardizing the insured's principle assets (home)