Income Replacement Calculator
By Bob Barney, President of COMPULIFE and TERM4SALE

Compulife Software, Inc. president Bob Barney has stated, "The Income Replacement Calculator was an important addition to the TERM4SALE website because the biggest problem facing life insurance consumers is that most are underinsured".

Mr. Barney, who founded Compulife in Canada in 1982 and in the United States in 1987, is a contributing editor to Canadian MoneySaver magazine. Mr. Barney has authored 50 articles for Canadian MoneySaver over the past 12 years. During the fall of 2000 Canadian MoneySaver published a series of three articles which address in detail the subject of purchasing enough life insurance to make certain that a breadwinner's dependents have a replacement paycheck in the event of their death.

Those Canadian MoneySaver articles are titled:

You're Worth How Much?
Most consumers have trouble translating their financial value into a single lump sum. Mr. Barney offers some ideas and anecdotes to explain how a human being's financial value is directly linked to the income that they earn.

Yeah, but you missed...
This second article analyzes the three popular reasons people buy life insurance, and why Mr. Barney believes that those reasons are a distraction from the real need to own life insurance. For example, Mr. Barney does not believe you need mortgage insurance if you properly insure your income.

Fine Tuning Income Replacement
You can reduce the amount of life insurance that you need to provide a replacement income by factoring in other sources of income, and other sources of lump sum money. This third and final article explains that it is important to analyze what money is appropriate for the income replacement job, and what money isn't.

Second and Third Biggest Problems

While being underinsured is the biggest problem facing most life insurance consumers, there are two other problems you need to keep in mind.

Life Insurance Needs Calculator

Gross annual income needed by dependents
Number of years this income will be needed
Estimate the inflation rate
Estimate the interest rate
Postal Code (first 3 characters)
Birthdate Gender Smoker / Tobacco Health Class
Type of Insurance

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Problem Number 2 - Buying the Wrong Kind of Life Insurance

Most consumers need term insurance because most consumer's needs for life insurance are temporary. When talking about a replacement income for dependents, younger families are faced with the greatest needs for insurance, particularly when you consider that they have few cash assets to fall back on. They are also in a position of having the least amount of money to spend on life insurance premiums.

Having said that, many young people are persuaded by life agents to buy whole life insurance. Whole life is a product poorly suited to address the income replacement problem. The argument for whole life is that it will provide a level premium. This is in contrast to term insurance which gets more expensive as you get older. While term does get expensive later, the much lower initial cost fits most consumers' insurance needs. As noted, young families have the greatest insurance need, and term insurance is the most affordable way to buy that protection. Term only gets more expensive when it is needed less.

Whole life insurance is an important component for estate planning but consumers should not "put the cart before the horse". Make sure you have adequate amounts of insurance to replace your paycheck while you are still working, and adequate amounts of retirement savings to replace your paycheck when you retire and stop working. Only after these two basic needs have been addressed should you look into using life insurance for estate planning.

Problem Number 3 - Not Comparing Life Insurance Costs

Most people have a hard time believing there can be so much difference in premiums from life insurance company to life insurance company. Frankly, this is one of the biggest reasons there is such a difference. If you think the premiums are the same from company to company, then you won't shop. If you won't shop, there is not much incentive for a life insurance company to worry about what they are charging you.

The sad fact is most people do not "buy" life insurance, they are "sold" life insurance. People will shop all over to get the best deal on a toaster, but when it comes to buying life insurance they usually buy what the agent is recommending. Not only do most people like to think that all life companies charge the same, they don't care to look around and see if they are right or wrong about it.

Life insurance premiums, when you add up the costs over the years, amount to hundreds and thousands of dollars. If you start talking about a 50% difference in cost, and factor in hundreds and thousands of dollars, you get cost savings of hundreds and thousands of dollars. Why aren't you shopping?

To be honest it is not all the consumer's fault. Most life insurance agents do not encourage you to shop. Rather, they encourage you to believe they have taken "professional" care of you. More than one agent, in defense of higher prices, has said, "I'm worth the difference." Frankly, that agent's clients don't know they are paying a difference to do business with that agent. The problem is further compounded by an agent's ability to "snow you" with terms and phrases that are completely confusing to someone not in the life insurance industry. ln fact, those terms can be pretty confusing to someone in the industry.

The point is that you need to take a careful look at your life insurance program and find out if it is as good as it can be. Shop for your insurance and find an agent who can explain things in terms you can understand.

That's where can be of great help. You can instantly shop from over 150 life insurance companies and locate the most competitive alternatives based upon your age, sex, health and smoking category.

Just as important, you can obtain the names of three life agents in your area who use the more complex agent version of the Compulife term comparison software program. An agent who invests in such information and technology is someone dedicated to selling for more than one life insurance company. That means you are dealing with an agent concerned about the price of the insurance that they are selling to consumers. By speaking to three different agents, you will get competing advice that will help you find the best product and strategy for your particular situation.