Needs Fulfillment Method

Using the Needs Fulfillment Method, we try to determine how much insurance is necessary to provide for the needs of the surviving family. This could work out to be more or less than the amount of insurance necessary to replace your lost income.

How much after-tax income would you want for your family this year? $

Of course, this annual amount will have to increase each year in order to keep up with inflation. We recommend using a 4.5% annual inflation adjustment, which is slightly higher than the average inflation rate over the last ten years. However, you may wish to use a rate as low as the 3% long-term average for inflation, or as high as the 7.2% average experienced in the 1970's.

What annual inflation rate should we use? %

You generally want to continue providing this level of support throughout your spouse's life.

Number of years in which you want to be able to make these payments?

Next we need to select an appropriate "discount rate" for the analysis. This rate tells us how quickly the insurance proceeds will grow over time. The faster we think that the insurance money will grow, the less insurance we will need to buy.

The appropriate discount rate is driven by (1) how the money is invested, and (2) your family's tax bracket after your death. Regardless of how your family will ultimately invest the money, we advise that you select a conservative growth rate for purposes of determining insurance needs. The higher the growth rate that you select, the more you will be relying on favorable investment returns to take care of your family.

7.53%, which is the return on long-term government bonds from 1966-1992.
8.63%, which is the return on mid-term government bonds from 1966-1992.
11.05%, which is the return on common stocks from 1966-1992.
%, which is my own preferred discount rate.

Finally, since we are trying to replace after-tax income, we need to assume an average tax rate for your surviving spouse.

What tax rate should we assume? %

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Information and calculations are provided "AS IS", without any express or implied warranty. Key Partners disclaims any warranty of merchantability or fitness for a particular purpose.

Information and calculations are provided "AS IS", without any express or implied warranty.
Key Partners disclaims any warranty of merchantability or fitness for a particular purpose.