If you’re planning to make a sound estimate of life insurance policy amount they have to pay, then using a life insurance calculator will do the trick. This article can help you to consider your current financial status and imagine what your dear ones will need in the coming years. You can use a life insurance calculator to find your life insurance policy amount after calculating your long-term financial obligations minus your assets. The remainder you get is the right amount you can fill with life insurance. But what to include in your calculations can be difficult to know. Here are some tips and rules on what all to include in your life insurance calculator calculations to decide the ideal coverage amount:

Ten times your income plus $100,000 per child

The first rule is to multiply your income by 10 and add another layer of $100,000 for each child. This can help you to compensate the college expenses of each child. The expenses on education are plays a vital component in the calculation of your life insurance if you have kids. It has to be kept in mind that even though this formula adds support for your children’s education, it does not add much to your family’s miscellaneous needs, assets or any other Life insurance coverage which are already in place.

The DIME formula
DIME is the short form of debt, income, mortgage, and education. This formula will be helpful in taking a more detailed report of your finances than the above-said rule. This 30-year covers the four crucial areas that you have to consider when you calculate the Life Insurance needs.

• Debt and final expenses: This includes your debts exclusive of your mortgage along with an estimate of your funeral expenses.
• Income: It decides and states the number of years your family would need the support and multiply the annual income you receive by that number. One thing to note is that the multiplier might be the total number of years before the graduation of your youngest child. You can use this life insurance calculator to find your income replacement needs.
• Mortgage: The total amount required to pay off your mortgage.
• Education: This is an estimated cost of sending your children to college.

Even though this formula is much more comprehensive, but it doesn’t necessarily account for the savings and insurance coverage you already have. Also, it fails to consider the unpaid contributions made by the stay-at-home parents.

You can just follow this general philosophy to calculate your target coverage amount: your liquid assets subtracted from the total financial obligations.

• To calculate your obligations, you can add your annual salary (multiplied by the number of years you wish to replace income) + your mortgage balance + other debts if any + future expenses such as your kid’s college, funeral costs.
• From that, subtract your liquid assets like savings, current life insurance coverage, and other existing college funds.

Just keep these tips in mind when you use a life insurance calculator to calculate your coverage needs.

• Consider the insurance purchase as a part of the overall financial plan rather than planning life insurance in isolation. The plan must be capable of accounting the future growth of your income and also the expenses such as college costs. Once you are clear with that information, you will be in a better position to map the ideal life insurance coverage on top of the plan.
• It must be noted that your income is likely to increase over the years and so the expenses. Because of this reason, experts recommend buying a little more coverage than you think instead of choosing a cheaper option. While the predictions are quite impossible regarding the market fluctuations, how much either of these may hike, a caution can ensure your loved ones to maintain their lifestyle safely.
• Discuss with your spouse; it can be a great help to finalize the amount and know that if your estimates make sense to her or him.
• You may consider buying more than one smaller insurance policy instead of a larger one. The total cost can be brought down by this simple step. Also, you can ensure adequate coverage to the needy times. For example, you can buy a 30 year term insurance coverage that covers your spouse until the time of your retirement along with a 20-year term policy that covers your kids until they graduate from the college.
• If you are parent/parents of young children, the expert recommendation for you is to choose 30-year other than going for a 20-year policy. This can help them by providing sufficient time to build up assets. Opting for a longer term, you are less likely to get caught in shortages and you’ll be saved from those extra liabilities while shopping for coverage again in future when you are older, and the rates get higher.