How to use rule of 72 to find how much insurance I need?

Question

Simply heard that for approximate calculations we can use rule of 72 to find how much insurance is needed.

For Example my assests are worth $200,000 and loans are 220,000. Final expenses 50,000 and my family will need $54,000 per year in case of my death.

Can we use rule of 72 to find my need of Life Insurance. If yes; How ??

Answer 1

"Rule of 72" is an investment term that allow you to determine how much interest (rate of return) you need to earn in a certain period of time to double your money.

For example - to double your money in 8 years you need 9% interest.

I have never used that to calculate a life insurance need.

Here are a couple of simple ways to calculate your need.

1.

If your family needs $54,000/year the easiest way is to figure out what rate of interest the death benefit proceeds could be invested at.  If you could get 5.4% interest on an investment than $1,000,000 will provide that level of income for life.

2.

You should probably get at least 760,000 based on this very simple calculation:

54,000 x 10 years = $540,000

plus loans of $220,000

This is an oversimplified way of looking at your insurance need.  I recommend that you meet a local broker or agent to do a more thorough review and find the right policy for you.

Answer 2

"Rule of 72" has to do with calculating the compounding of interest.