Comprehensive Life Insurance Calculator
|Life Insurance Program Directions||Download the Free Life Insurance Software Demo||Text that Helps Explain the Capital Needs Analysis Reports|
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Life insurance pays the face value of the policy to the beneficiary upon the insured's death.
The most-common use is to provide money to a surviving spouse and family when the main breadwinner passes away. The two main things it pays for are the immediate needs for money, and then to replace the breadwinner's future income which is lost.
This whole process of determining the policy's needed face amount is also known as capital needs analysis.
This life insurance software will accurately calculate how much life insurance is really needed - both currently, and far into the future.
You'd just input current lump sum needs; like paying off debts, mortgages, final expenses (burial, funeral, estate administration, probate, medical bills, etc.), estate taxes, giving (e.g., charities), the present value of all of the children's college expenses, etc.
Then input all of the lump sum amounts that are currently available (what financial assets can be liquidated now and used to fund all of these capital Needs).
Then input monthly income the surviving spouse and family will need.
You'd then input all sources of monthly income the survivor will have, even if the breadwinner were to pass away (both in the current year and in the future).
For example, the surviving spouse will probably receive income in two out of the three Social Security time frames: When there are minor children (and Social Security pays the most), when there's no minor children and Social Security doesn't pay anything (AKA the Blackout Period), and at retirement (when Social Security pays survivor's retirement benefits at age 60).
Then the life insurance program calculates the differences between these four present values (lump sum needs vs. assets available & future income needs vs. future incomes available). This is then the grand total amount of life insurance needed now.
You can then manipulate everything to project life insurance needs up to 75 years into the future. In other words, if the breadwinner doesn't pass away this year, then how much lie insurance is needed next year? If they survive next year, then what's needed after that?
This ability to forecast into the future exposes a little-known secret about life insurance needs - they decline substantially every year. See the bottom chart on the Future Needs sheet of the demo, and the directions for details.
Life insurance needs decline annually because of three factors (assuming the breadwinner would have kept on winning bread until there was no need for life insurance anymore).
First, every year the insured survives is one less year of earned income that needs to be replaced with insurance capital. This is by far the largest of the three factors.
Next, the amount of lump sum needs decline as debts are paid off, children get through college, and other large funding needs dissipate.
Then last, but sometimes not least, assets usually increase annually as saving vehicles are added to, and investment and retirement accounts grow.
With all of the income and expense manual overrides with this life insurance calculator, you can control all lump sum needs, incomes, and expenses down to the dollar in every year.
This matters because it's important to know exactly how much life insurance you need. Not only is it important to not waste big money maintaining too much life insurance, but you also need to know if you've been underestimating your needs (which is much worse than just overpaying annual premiums).
The only way to know exactly how much to maintain, is to input all of the factors that go into calculating how much you really need, and then controlling how these needs change in the future. You can easily do all of this in less than an hour just by reading the directions, looking at your Social Security statements, and making your best guesses about the future.
Just ignorantly keeping the same face amount forever results in wasting hundreds to thousands annually maintaining unneeded life insurance. For the typical family, the amount of wasted money over a decade is usually enough to buy a nice car, so this is not a trivial matter.
Although this capital needs calculator is set up for families, it can also be used to perform similar capital needs functions:
• Single people's life insurance needs.
• The business needs of insuring key employees and/or cross purchase agreements.
• To see what lump sum it takes to replace future unequal income streams.
• To guesstimate how much annually Social Security will pay to survivors, and how it will impact the total picture. Social Security pays a lot less than people think. You can download the free benefits calculator from the Social Security website, so you won't have to guess. Families should do this annually regardless.
Life Insurance Calculator Operation and Features
Please note that if you got here from the IFP page, those life modules are a little different than this stand-alone module
• The main Current Needs presentation sheet shows all of today's lump sum needs, and the present value of lost family income. Then the amount of savings and investments that are currently available to the surviving family are subtracted. Then the expected incomes of the survivor are subtracted.
This is then how much life insurance face value is needed now to be fully covered. Most capital needs programs don't break it out this well.
• Lump sum needs, lump sum investments available, and income replacement needs all have future projection sheets. This allows you to control all three sections separately, down to the dollar in every future year. No other capital needs software even has these critical features at all.
• In addition to accounting for generic income needs, you can also input up to five additional independent sources of future incomes and/or expenses. You can automatically inflate all ten items and/or you can manually override them in every year. This gives you total control of every dollar in every year.
The same applies to Social Security benefits - you can control every dollar in every year only with this life insurance program.
• It has a detailed table showing all 75 years of cash flows that sum up to determine the true present value of today's needs. This is on a different sheet to keep current and future life insurance needs separate to minimize confusion.
• This life insurance software transparently shows the flow of all calculations. This is important because it displays all of the details one needs to understand the process. This makes it easy to prove and trace where every dollar came from. So this capital needs software Makes it so nobody can say, "That's not right." All of the evidence is clear and indisputable.
• It then takes this data and makes two stacked area charts showing all expenses, incomes, and deficits that need to be funded with life insurance. This has two of these kinds of graphs (most just have the bottom chart).
• Capital from life insurance isn't needed in years when there's more money coming in than being spent. So to account for this, it takes annual cash flow surpluses into account, by using the previous year's surplus to fund the next year's cash flow deficit. This life insurance program does this correctly and automatically.
Lack of this feature will ignore years with cash flow surpluses. This may greatly overstate the amount of life insurance needed, which will result in buying too much, which results in wasted money.
• You can account for up to six children's educations, or similar future spending goals (things that will require more than one-year of funding). You can also account for spending on an unlimited number of things that will happen in any future year (just by adding them all up and inputting the total in that year).
• You can integrate detailed annual data from the college savings calculator so you can fully-fund those future needs with maximum accuracy (and have the life insurance needs automatically update when you change something in the college planner). You can also integrate this module with retirement software, loan amortization schedules, and any other spreadsheet (using either the Normal inputs or the manual overrides).
• It also has a simple percentage-based income replacement calculator, like other life insurance software, just FYI.
• It has three bar charts with valuable information showing future needs. Competing life insurance programs only have one or two.
• Everything on the Current Needs and Future Needs sheets are all unprotected so you can make any changes you want.
• Excel's built-in Goal Seek function makes it so you can easily perform any "What-If" scenario that any other life insurance program can do, plus dozens more they can't.
Using the demo as an example, you can go to cell J27 of the Current Needs sheet, click Data, What-If Analysis, Goal Seek, then input $775,000 into the middle field, and then go to the Income Replacement Calculations sheet and click a cell like BA26, and then press enter.
This will automatically increase the monthly amount of money the survivor has to earn in 2030 to lower the current life insurance needs from $784,318 to $775,000. Any combination of cells can be used to do any What-If scenario.
• It displays the annual percentage rate of change (decline) in the face amounts needed. This allows you to buy life insurance that will automatically reduce the face amount by a set percentage each year (sometimes called a negative inflation rider or a loan amortization rider). This will save you tons of money in premiums and time not having to tinker with your policy face amounts each year (which you should).
• Life insurance agents can choose to hide, delete, or just not print the future information showing how life insurance needs decline substantially over time. They can just use the current needs information when creating proposals for clients and easily ignore all of the future needs data (just don't print it, or you can even delete the whole sheet from the workbook).
To download the demo, right click on the link below, and then choose "Save (Target) As..." to save to your hard drive. Then find it and open with Excel.
Be sure to see the sheet that shows what colors should look like.
The life insurance software demo is the actual program, saved without the formulas, so you won't be able to do anything but look at it. You'll receive a functional spreadsheet after purchase.
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