How Much Life Insurance Does My Family Need

While working with our Law Enforcement clients, we often hear the question “How much income does my family need”?

The answer to this question differs from one officer’s situation to the next.

Consider the following:

  • What would be the financial impact on your family if they lost 100% of your income?
  • What would be the financial impact on your family if they lost 75% of your income?
  • What would be the financial impact on your family if they lost 50% of your income?

The answer to these questions will help you decide what percentage of your income you will need to provide to your loved ones.

While most officers choose to provide 100% of their income to their loved ones, others decide on a lesser percentage due other household income sources such as social security, spouse’s income from work, other savings and/or investments available.

Another factor to consider is the rate-of-return you believe your loved one’s can earn on the invested death benefit.

The chart below will help you to decide how much life insurance to purchase:

First, choose the amount of income you would like to provide in the left column of the chart.
Now, select the average rate of return from the top row you feel your loved ones can earn on the invested death benefit. From there, run finger down the column to the desired income you selected to see the amount of life insurance you should buy.

Note: From 1966 to 2007 the S&P has averaged a 12.73% rate of return. More moderate investors may consider using an 8% to 10% rate of return while conservative investors may want to consider a 6% rate of return in their calculations. 

Replacement Income Table

Desired Income to
Replace

What Average Rate of Return
Do You Feel Your Investments Will Earn?

4%

6%

8%

10%

12%

Below is the amount of Life Insurance needed
to produce the income desired

$10,000

250,000

167,000

125,000

100,000

84,000

$20,000

500,000

334,000

250,000

200,000

168,000

$30,000

750,000

500,000

375,000

300,000

250,000

$40,000

1,000,000

667,000

500,000

400,000

334,000

$50,000

1,250,000

834,000

625,000

500,000

417,000

$60,000

1,500,000

1,000,000

750,000

600,000

500,000

$70,000

1,750,000

1,667,000

875,000

700,000

584,000

$80,000

2,000,000

1,334,000

1,000,000

800,000

667,000

$90,000

2,250,000

1,500,000

1,125,000

900,000

750,000

$100,000

2,500,000

1,667,000

1,250,000

1,000,000

834,000

First Column: Annual income to be replaced.
Top Row: Assumed rate of return on investments.

Table Body: Lump sum life insurance required to replace income.

Here’s another quick and easy formula to help you calculate the death benefit without using the chart:

Formula: Income Desired divided by Expected Rate of Return = Death Benefit Needed

Example: Income Desired is $65,000 divided by 8% = $812,500 of Life Insurance Needed

The above information is for informational use only. Law Enforcement Life is not personally advising you regarding the suitability of  your investment needs. In no event  will Law Enforcement Life be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from or arising out of, or in connection with the use of this information. Please consult your investment advisor before making any investment decision.





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