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Determining Amount of Personal Life Insurance Needed

The proper amount of life insurance should be determined to prevent over or under insuring an individual. Two of the approaches used to determine the need and amount are human life value and needs analysis.

1. Human Life Value Approach

This approach is a measure of the actual future earnings and services of a person at risk in the event of a premature death. The objective is to provide the proper amount of coverage as determined by the value of the individual to his/her dependents using the following factors:

  1. The individual’s after-tax annual salary.
  2. The individual’s annual expenses, not to include hobby or habit expenses.
  3. The value of all personal assets.
  4. The number of years remaining for the individual’s expected ability to work.
  5. Ages of all family members that determines the dependency period of the family members.
  6. The value of the individual’s dollar as it depreciates over time.
  7. Present salaries of all wage earners in the home.

2. Needs Analysis Approach

This approach determines a need for coverage upon the premature death of an individual. It always assumes the death of the individual to be immediate and uses the following factors to arrive at the proper amount of coverage needed.

  1. Calculate all financial needs caused by an immediate death. To properly calculate this need one must know the age of each dependent child.
  2. Subtract any assets available to fund financial needs after death.
  3. Purchase adequate life insurance to fill all gaps between needs and available assets.
  4. Regardless of age, some needs are permanent, such as retirement, disability funds and funeral expenses; while some needs are disappearing, such as mortgage and educational funds.
  5. An Emergency Reserve Fund could be part of the calculation to provide for unexpected emergencies the family might encounter immediately after the death of the insured. For educational funds, consideration must be given to the type of education, tuition costs, and number of children. Medical expense during college is not an educational cost factor.

3. Income Objective

To analyze the insurance needs in either approach one must also take into consideration the income objective of the proposed insured. One may use two methods of income objectives to arrive at the amount of insurance needed to fill the human life value or needs analysis requirements.

  1. Capital Liquidation – assumes both principal (capital) and interest are liquidated over the relevant time period to provide the required income for the dependents.
  2. Capital Retention/Conservation – assumes the desired income will be generated by the investment earnings only, thus retaining or conserving the principal or capital invested.

Universal Life

Universal life insurance products are fixed insurance products that offer security, flexibility and guarantees. Universal life has the security of minimum guarantees and offers a competitive interest rate and an accumulation account from which policyowners may borrow. In addition, premiums and death benefits can be changed by the policyowner when needs change.

Universal life can be an excellent choice for family protection, estate planning or business needs. With guaranteed protection, these products offer control and flexibility to help you reach your financial goals.

Survivorship Universal Life

Survivorship universal life is a form of life insurance that insured two perople and pays the policy death benefits after the death of the last surviving insured. It is specially designed for couples with estate and inheritance issues.

You can use survivorship universal life insurance to equalize bequests among your heirs, fund a trust, make gifts to charities or for any other estate-planning goal. What’s more, your policy’s accumulation value grows tax deferred, so it is sheltered from the effects of current income taxation.

Term Life

Term life is the most basic form of life insurance. It requires a relatively low initial cost in order to provide protection for loved ones in the event of your death. We offer a wide range of competitive renewable and convertible term life insurance.


Nobody has all the answers in life, but it never hurts to have a trusted financial adviser and a solid financial partner in your corner. Maybe you’re just beginning to save and invest, or perhaps you are entering retirement and starting to consider the income strategies available. Regardless of your life stage, you and your adviser have a strong partner in JTK Financial Services. Whether you’re wondering how to secure the retirement you’ve envisioned or the best way to protect your legacy and heirs, we can help.

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