How much life insurance do I need if....?

Question

I want my beneficiary to invest it in something that will yield my annual income. How much should I get? I make $60,000 a year and have been told this is a good fomula to use to determine this but I am not savvy enough in the investing field to figure this out. I'm sure a mutual fund of some sort but I do not know how often those pay out.

Answer 1

Depends how many years you want the beneficiary to collect income from this and what rate of return they would earn.

When you say you want them to yield your annual income, do you want them to yeild that just from the return on the investment or do you want them to earn that from just drawing on the insurance benefit amount.

Simple math would dictate that if you want them to earn $60,000 a year just from the return on investment, you would need a million dollar policy invested at a 6% annual return (that is a fairly conservative return so it shouldn't be difficult).  IF you think they can earn 8% you would only need 750,000 of coverage.  If it's in a compounded interest investment the earnings would be higher, but they may be taxed at a higher bracket.

IF you just want them to have the income from drawing on their insurance benefit, just multiply your income by the number of years you want them to recieve benefit from.

You best bet would be to meet with a liscensed insurance broker and they can do a needs analysis for you.

Answer 2

I am assuming that you mean you want it to earn $60k per year continually & just not for a certain period of time, where most get it to provide for a certain period of time, say 5-10 years.

In this instance (we will just assume the easiest round numbers), you need to produce $60k annually soley from returns on investment & not from selling the actual investment which will creat smaller & smaller amount of principal working each year. The simplest way is to say you get a $1million policy that after investment, produces a minimum of 6% return constantly (1,000,000 x 6%= 60,000). The "constant" part will be your issue to get. When ever the stock market is quoted as getting between 8%-12% annual return, you must remember that is the AVERAGE return over a 10 year period. Not the actual annual return you get.

You can find some good returns on many funds & other investments that can give you that 6% bassed on the $1million. Depending on them, they can pay out monthly, quarterly, semi-annual or annual.

Answer 3

I would buy property and rent it out by the time you retire the mortgage should have been paid and the rent will be your gross income . Aim to buy 1 property as soon as you can afford it and build up a portfolio. Forget all those funds and pensions you only get a fraction of what the company makes and the guy doing the investing probably earns 2-3 times your salary

Answer 4

Life insurance needs vary according to the individual and his/her family situation.  The purpose is to replace your lost income for the sake of your family.  Coverage of ten times your annual income might be a good figure.

It will be up to your survivors to decide how to invest or use it.

Answer 5

Divide your income by your beneficiary's anticipated rate of return.  It's important to use your beneficiary's risk tolerance, not your own because you won't be around to invest the money.

Here are two examples:

$60000 / .10 = $600000

$60000 / .06 = $1000000

This formula does not count the time value of money.