 Personal finance practice problem using OneNote. Online life insurance calculators. Prepare to get financially fit by practicing personal finance. Here we are in OneNote. Up above we have some links to some life insurance calculators online, but you can also of course just type into your favorite browser, Life Insurance Calculator, and you will find a bunch of them. Down below we're gonna have some information that we will use to populate some of the life insurance calculators to practice with them in future presentations. We'll be doing some calculations in Excel noting that like with the loan calculators, I think the online calculators are a great tool to get an understanding of the kinds of calculations that should be made. And then do your own calculation in Excel because that gives you a better grasp of what is actually happening as you actually work through the calculations. You can also customize Excel much better to fit your particular needs and the types of calculations you think are appropriate to you. You can also use of course the Excel to then be part of a larger kind of budgeting strategy, tax planning strategy, retirement strategy, risk management strategy for example. So let's go on to a good old Google here. Here's a couple of life insurance calculators. We'll just take a look at a few of them. So this one, I'm not promoting any of these. This is just a Google search and we found some life insurance calculators that we will use and take a look at the kind of functions and the features that they're focusing in on. So how much money will be needed for burial expenses? So this is something of course that we're thinking about, okay, what are gonna be the costs that they're gonna have to take care of for the burial expenses? And we can kind of arrange that multiple different ways. But here we have the average costs range from 8,000 to more than 10,000. So we've got the 8,000 populated for us. If I look at my data over here, we call it, we said 8,400. So let's say 8,400 on this one. And so next we've got how many years of income will you need to cover? Now obviously that's gonna be somewhat subjective because that could differ. That's gonna be one of the key questions what it could, you might dependent say for example, on how young children are and how long the children are going to be till they reach 18 and then possibly have college that you can kind of add on top of that or you might choose kind of a generic answer. You might say, well, I think that it takes about seven to 10 years for example, for people to get used to the new circumstances. For example, so you might just use a generic like 10 years. You might think about how long you are out to retirement, how long your working years are. So there's many different ways you can consider this. They have here base your answer by considering how long your family would need your income to make ends meet if you were to die. That's kind of, again, it's kind of hard to say. There's a couple of different ways you can kind of think about that. For example, would your income need to be replaced until your children finish education or until your spouse gets a job or dies? So these are the considerations. A lot of times people use like 10 or seven, for example, as just basically an average of an average year. So that would be like the simple calculation. In any case, we'll keep it at 10 for this one. How much annual net income will your survivors need? Again, that's kind of a tough one to say. You might say that it would be your full income that you're making right now because you're no longer making that. But you might also say, but if I'm dead, then at least they don't have the cost of me consuming that amount of income. So you might take like some percentage of that income that would be needed. Your questions would be, do I want to have the income that would be there to have the same cost of living? Do I want to have the income minus me that would be there? And so you can have multiple different ways you can kind of answer that question. But the baseline would be maybe you could say, well, if the spouse that is dying had income of 73,000 and I want to keep it at the 73, I'm just going to put 73,000 here. So let's say 73,000. And how much money do you have in savings and investment? It's because the savings and investment, we're really looking at if you're kind of self-insured, meaning if you have money in the savings and investments over the liabilities, then obviously you have some money that's going to be useful. If you have a lot of debt that's going to be out there, then that's going to be more of a problem if you were to die. So let's pull out the trustee calculator and let's say that we've got in the savings and investing. Let's say we've got the 16,400 plus the emergency fund, 19,5. And then the IRA, you've got to think, do I want to add the IRA or not? Because I can't really get to that until I was in retirement, for example, but it's going to kick in at some point. Let's add it here, let's be 25,4. And so that's going to be the 61,361,3. So let's put that here, back in my calculator, 61,3. And do you have any children? So we're going to say children, of course, will affect the calculation. I think we said we had five children here, five kids. That's going to have an impact. So we've got five kids on that one. And then the age of the children, so we could say how old are they. I don't think I have that much detail in terms of how old they are, but that would be often a useful calculation because one of the methods you'd see how long you're going to need the money is to determine how long the youngest kid will get to reach adulthood 18, at least, to be on their own. It might be further than that these days for someone to be able to take care of themselves. Let's just say, let's say, two, five, five, eight, and nine, I don't know. So how much is needed for future college expenses per child? So that would be an added cost. We can tack on with the college expenses that we can kind of aim for and we can kind of figure out what the college expenses are and try to shoot for that. I'm not going to put any right here. They're on their own right now. I'm going for the baseline. So are there any one-time expenses you wish to fund so there might be other kind of one-time costs that we might be looking for that we can add in as kind of an aim? Let's say no, and let's do a calculation. See recommendations based on your inputs. It appears that the approximate amount life insurance is 63337516. Here's why. We consider each of your answers and weight each based on the experience of our experts based upon your projected financial needs and the periods in time when that money would be needed. We have determined the approximate amount of life insurance you need today to compute the return on your investment between now and when you indicated the money would be needed. We've assumed a 2.5 return for horizons of five years and less and 4% return for horizons of 10 years and a 6%, these returns were then adjusted. So find more insurance information so they don't give us too much of a breakdown but there's their calculation. Let's try this one. This is life insurance calculator. So Northwestern Mutual, let's see what they've got here. So first tell us a bit about your family. So we've got options, just me, me and my partner, me and my kids, me, my partner and my kids. So we're gonna say married couple, partner, kids, next. It's helpful for us to know where you live too. Do I really have to 90210? I'm in Beverly Hill. Is that how you say 90290210, Beverly Hills? I'm just making this up. So your gender could also be a factor. So we'll just say I'm male here. It's not to confuse anyone with my voice and whatnot. So that's, and then that's because, so your age also makes a difference. You just need to know everything. Okay, let's just say 35. I'm making this up. I'm not really 35. So your partner's age matters. This helps, let's say the partner is 34. Okay, and then how many kids do you have? We've got the five kids we said, five kids. So how old is your youngest? So they often ask for the youngest because they're the one that might be, we're going to say two that you might be saying needs to get to 18. That's what we got to be paying. We got to be paying at least till that youngest kid can fend for themselves. Your annual income is important factor. So we can figure out how much your family needs are. How much, so we can figure out how much your family will need to keep up. So your annual income, I think they just want my income and not my spouses. So I think I'm going to put there, we said that according to our practice problem, we got the gross income, we're saying of 73,000. Let's use that, 73,000, 73,000 per year. So we figure, and this is a little ambiguous because I can't really tell if they want my income as the person being insured or the family income. So I'm going to keep it at the 73. Your partner, oh there we go. Now we got the partner's annual income. Okay, partner's making 49,000 gross. So we'll put the 49,000. This one looks a little bit more detailed. It's taking in the more factors at least. Actually they're probably just selling my information. It's fake. So you guys can steal my information if you want whatever because it's not even real. So this lets you know how much your family will need for things like rent, groceries. So what are your monthly expenses? So we're getting into the full budget here. Monthly expenses. Let's scroll down and say, okay, should I include the mortgage payment? I'm not sure if they want like a cash flow basis or like an accrual basis because like the mortgage isn't really an expense but I'm saying, I'm thinking they want cash flow. So I'm going to say one, two, eight, five, plus four, four, oh, plus two, four, oh, plus one, eight, oh, plus actually is that monthly? These are monthly, right? Okay, let's do it again. One, two, eight, five, plus four, four, oh, plus two, four, oh, plus one, eight, oh, plus five, two, oh, plus two, nine, five, plus two, nine, five, plus two, nine, three, plus one, four, five. Hopefully that adds up. I'm not going to double check it. I'm just going to say it's three, six, nine, three. If I messed up on my calculation, I didn't mess up. I know what I'm calculating wizard. Select the amount. Let's tell us how much your family will need. Let's just bring it up to four, round it up to 4,000. Do you have a mortgage? Yes, I do. So do you have a mortgage? Your estimate so far, do you have them? Is that much? Whew, that got higher. Okay, I've got a mortgage. How much do you have left on your mortgage? Okay, let me see. My liability, my mortgage. How much do I have on my mortgage? 150,000, 150. The range, one to two. We'll go with that. Boom. Do you have any other debts? Things like credit cards, probably. I've got like a credit card and loan that adds up to, we're going to say three, nine, oh, oh, plus seven, four, oh, oh, 11, three on my other debts that I have. If you really have to know, Mr. Nosey, less than 50,000, we're going to say, okay, how much other assets, how much do your assets add up? Okay, do I include the home on there? We're talking liquid and non-liquid assets. We're going to say my assets are right here. I'll say I got a checking account, two, nine, oh, oh, plus one, six, four, oh, oh, plus 19, five, oh, oh, plus 25, four, plus the 11, nine on the car, 19, four on the car, two, 200,000 on the home, 295, five, we'll say, 295, five. So let's say I've got 200 to 300 on the asset side of things. So this things like your retirement and bank accounts, other investments and valuables. What about the house? How much do your assets add up to? They don't say the house. I'm assuming the house is in there. Anyways, they get to your estimate. Great, based on what we told, here's how much coverage you'll need. So 820, so obviously they had a much more in-depth amount of data that I had to put in there, but not too much information on how they got to that number, right? But there's their cactus, so we can say, oh, okay, I'm just going to have faith in that number because I gave them a lot of stuff, but they didn't tell me how they really got there. So to place your income, to pay for college, so here's your income. Okay, let's try this one. Let's try another one. Life insurance needs calculator. Answer a simple question to estimate amount of life insurance. So think about how much money your family will need to cover daily expenses. This is typically 60 to 80% of your individual post-tax income. So now we're looking at kind of the baseline, how much, and oftentimes we say, here's how much I make, but really I'm looking at to try to figure out how much we're going to need to cover the expenses, especially if you're dead, might mean that you are less of an expense, you're not eating anything, right? So it's going to be 70%, 60 to 80% possibly. Don't include college savings, children, or any debts that you would like to pay off immediately, such as mortgage, since those are covered in other questions. So think about how much money your family will need to cover daily living expenses. This is typically 80% of your post-tax income. So you might say, okay, I could do that a couple of different ways. I can try to add up my expenses here. And I think they said not to include the mortgage, or I can try to just take my income level, and they wanted post-tax income. But let's just say my income level is here, they might be saying post-tax after the withholdings. So you might try to take like your net income maybe, but I'll take a percentage of the gross income. So they said 49,073,000 for the two incomes, we're at 122,000, you could look at the tax return for that. And then let's say they said set 60 to whatever percent, let's say times 60% of that would be the, let's take 70%, 49,000 plus 73,000 times 70%, because you don't need the whole thing because we're just looking at the mandatory stuff. And I'll be dead, so I won't be eating anything. 85,400, so we'll go with that. Next, how many years should income be provided after you're gone? Think about how long you'll need additional income to support your family. So again, this is tough to call because you might just use an average like seven to 10, just a number that's often used, or you might try to figure out how long your youngest child will be on their own, for example, is another common way, or how many years you had left in your working years, you might try to do that, or how many years your spouse would have to work till retirement or something like that. We'll just use the generic 10, 10 years. Next, how much debt would you like to pay off immediately? Consider things like outstanding mortgage, private student loans, credit card balances. So it would be nice if you could just wipe out the mortgage here, which we had at the 150,000 plus the 3,900 on the credit card, 7400. If you could just take care of those, 161.3, I think they would be fairly well off. I'd be better off dead if they could do that. In any case, this is gonna be 161.3 and say, next, how much would you like to provide for children? Consider how much it would cost for childcare services in your area and how long you'll need them. If you're staying at home, you'll likely need to pay for childcare services if you are no longer around to watch your children keep in mind that childcare needs can change. So I think I had a childcare thing. So now they're asking for childcare. No one else did that. I'd say the nanny fee, 1,400, let's say 1,000. How much childcare? Is this per year or per month? Child doesn't seem, let's say 1,400. Maybe need an annualized that. How many children require college funding? I'm not gonna, they're not, they're on their own for college if I'm dead. How much would you like to set aside for an emergency fund? So an emergency fund, so we might want like six months of our current earnings maybe or something like that as an average often used. So let's say that we came out with our, let's say we came out with our income, I said what's 49,000 divided by, or plus 73,000 times 0.7, I think we did. And let's say we just take half of that six months, 42,7. Let's say 42,7, 42,7. So notice the different questions being asked here. How much personal life insurance do you already have? I'm gonna say zero. That's why I'm here people. So then we got the income replacement. We've got the debt payoff. The childcare, the college fund, emergency fund, burial costs, they put 20,000, really? Just put me in a coffee can and throw me in the ocean for crying out a million, is that? So again, we're getting obviously different calculations. Let's try this one. So how much annual income would your dependents need? Again, that's an arbitrary question. You could say, okay, well, this is how much I'm making right now. Maybe I could start there, or maybe I take some percentage of it, like 70% of it or something like that. But if I'm the one dying, that's my income, 73,000. That would be the high level, you would think. You also might say, well, it should be higher because you might make more money in the future and there's like inflation or something. But we'll go with that. How long, but I'll, so in the case, how long would your dependents need financial support? Again, arbitrary question is, are you saying how long the kids until they're 18 or 21 or 24 or 40, however long it takes for kids to be dependent these days? Well, let's just say, or you could just use a random number like 10 or how long my working years would be if I was alive or something like that. We'll say 10 as a random number. So let's calculate your life insurance needs. How much debt do you need to pay off? So again, we could say, okay, my debt, I've got debt of the mortgage, 150,000, credit card, three, nine, seven, four car loans, 161, three. You take care of that and you can just freaking kill me right now and the world would be a better place. This is going to be 161, three. So if you want to help with the cost of college tuition, we're not doing that because we haven't been, how much do you want to add for burial? So my burial costs were 8,400. So eight, four, okay. And then how much savings do you have on the savings? I'll tell you how much I have right now. Let's just go with the savings, 164, 19, five. Do I add the IRA or not? I'll add it 25, four, because I added it last time because it's kind of locked in under the IRA, but whatever, we're going to add that in my savings, 61, three. So if you already have life insurance, I don't have any life insurance yet. So that very quick questionnaire here from these, from Forbes, so fairly quick calculate, how much savings do you have? So they come out to the 838. So notice all these calculations are totally different, right? And that's kind of part of the issue. So let's go to the next one. Edward Jones, what do they have to say? I think this one's a little bit more in depth. We've got the mortgage. So what was my mortgage at again? My mortgage was 150,000. So we'll say 150,000. My other debt came out to be, my other debt I had, I'll tell you my other debt, I had three, nine credit card, seven, four. On the car loans, 11, three, 11, three. Man, real estate, real estate I had, I got my home's worth 200,000, 200,000 is my home value. 200,000, auto between, are you telling me what the asset of my car is? I think that's what they want. My cars, I have two cars currently valued at 11, nine and 19, four, 31, three. On the cars, 31, three. Other liabilities, that's it, because they're all loans. I already gave you all the liabilities. So we'll keep it at that. And what income do you want replaced? How much would your family need for an ongoing living expense if they could no longer rely on your income? Again, I don't really know, but I'm making 73,000. So let's just keep it at that. I could say, well, I'm dead, so it should be less than that. Or I might say there's gonna be inflation. I would make more money in the future. So maybe it should be more than that or whatever. So you can have multiple assumptions, but I'll say 73,000 and keep it at that years. How many years? Again, a very arbitrary number. Do I, am I based on my youngest kid? How long they're gonna be until they're independent by age, you know, 42? Or do I need just 10 as a random year? That's what we've been doing. What funeral costs, final expenses, we estimated ours to be 8004, 8004, 8004. Other expenses, do I have other expenses? What final expenses do you have? What other, you mean all my normal expenses? These are the final expenses. If you need starting point, do we recommend 15,000? That's ridiculous. Just put me in a modest, reciprocal and whatever. So what are family education needs? So I'm not gonna do the education one, because I haven't before. Would you like to leave something for your heirs or charity? No. What assets would be available for family? This could include any additional assets that were not captured by other inputs. So current life insurance, business, real estate, cash, other investments, do I have other investments here? I put these already in. So maybe I should have put the IRA here instead of up here. But no, I'll keep it as it is. Assumptions, inflation rate recommended 3%. Inflation's getting ridiculous right now, but we'll keep your 3%, even though the Fed is out of control. Income tax rate, state and federal, let's just say 30. And you can get that on your tax return. It might be the average rate you're looking for. Rate of return, this is the rate of return your loved ones would expect to receive if they invest their life insurance proceeds. Let's say they're gonna get 5%. 4 to 5 is a pretty modest rate of return. They're recommending 6. I'm going with 5, whatever. And so other liabilities, you need something there? Let's put a zero, I don't have any other liabilities. Other expenses, zero. These are required fields, negative one, okay? Negative one, if that's the way you wanna play it. Zero, current life insurance, zero. Business, zero, zero. Negative one, okay, whatever, calculate it. Why is it doing this? Let's put one, one, between zero and 1, 9, 9, zero. All right, it's a little finicky this one, but it's coming out to total life needs, this amount, coverage, shortfall, this amount, total life needs is here. So I think this is the shortfall that they're calculating. So again, you can see extended details. Let's check out their details. So they're saying income replacement, final expenses, education, leg and legency, rate of return, inflation, current life, and so on to get to this shortfall. Congratulations taking fruit. Okay, so you can see all of these calculations are kind of using different factors and variables because there's a lot of estimates that are gonna go involved in it. So they're useful tools to kind of get to see if you're in the bowl part, but you probably wanna use a few of them and then you might wanna be taking the techniques that they're using and possibly apply them to an Excel formula so you can actually do your own calculation, have an understanding of it and so we'll do a couple kind of formats of calculations in future presentations just to get some ideas around them.