As a young adult just getting started in insurance I was sent to Columbus, Ohio for a month to learn all aspects of insurance including Life Insurance. This school; was taught by Nationwide Insurance for all new associate agents. They drilled down the fundamentals of insurance and of course, how to sell insurance…this is a sales job. The one I remember most was the formula to calculate How Much Life Insurance a Client Needs.
Here’s the formula
Financial Obligations minus Liquid Assets
Step 1 – Your Annual Salary multiplied by 5 year (Income Replacement)
Step 2 – Add up your Debt owed such as Mortgage, Car Loans, Credit Cards, etc.
Step 3 – College needs for your children
Step 4 – Funeral costs
So the average American makes an annual salary of $50,000. So take the $50,000 times that by 5 years equals $250,000
According to CNBC in 2021 the average American has $90,460 in debt. This could be low depending on your mortgage.
Average cost of tuition for a public college in Florida is $14,934. Assuming just one child and she/he completes it in 4 years equals about $60,000.
Funeral coast range about $10,000
Adding all this up amounts to $410,460 in financial obligations. Minus the average American’s liquid net worth of $12,050 leaves a Life Insurance need of…$398,410. So basically according to the formula you need roughly $400,000 in Life Insurance.
So Where’s the LIE???
The LIE is the formula doesn’t account for what you can Afford Month for Life Insurance! Nowhere in this formula does it ask how much you can afford to pay monthly. Most Americans live paycheck to paycheck. By the time you pay your debt each month you have little more money to afford to pay for a high priced Life Insurance policy.
So What is the MAGIC formula?
The magic formula is simple: take out as much Life Insurance as your monthly budget allows. Our computer systems have the ability to calculate how much life insurance you can obtain given your monthly budget.
If you can only afford $20 per month for life insurance. Then a policy can be designed to fit that budget! It may not be enough to satisfy your Financial Obligations, BUT some Life Insurance is better than NONE.
I’m CEO of Barbee Jackson Insurance, an Independent Insurance Agency based out of Florida. I have 20+ years in the insurance field selling Property Casualty, Annuities and Life Insurance. If you are interested in learning more about Life Insurance give me a call (850) 389-2001.