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Example Data
| Scenario | Income | Debts | Assets | Estimated Gap |
|---|---|---|---|---|
| Sample A | $60,000 | $25,000 | $30,000 | $650,000 |
| Sample B | $90,000 | $80,000 | $60,000 | $1,050,000 |
Formula Used
This tool combines an income replacement present value with capital needs, then subtracts available resources.
- Income needed = Annual Income x (Replacement % / 100)
- Real rate = (1 + Return) / (1 + Inflation) - 1
- PV of income = Income Needed x (1 - (1 + Real Rate)-Years) / Real Rate
- Capital needs = Debts + Final Expenses + Education + Emergency + Other Goals
- Total need = PV of Income + Capital Needs
- Coverage gap = Max(0, Total Need - (Existing Coverage + Liquid Assets))
How to Use This Calculator
- Enter annual income and the percent you want to replace.
- Choose how many years the household needs support.
- Add debts, final expenses, and any funding goals.
- Enter existing coverage and liquid assets you would use.
- Set inflation and return assumptions for a realistic result.
- Press Submit to view the breakdown above the form.
- Use the download buttons to save the results.
Planning Notes
Income replacement baseline
Most households start by replacing 60% to 80% of gross income, then adjust for taxes and benefits. If income is $60,000 and you choose 70%, the replacement target is $42,000 per year. This tool converts that target into a present value using your inflation and return assumptions, so the number aligns with long-term purchasing power.
Time horizon and dependency years
Coverage length usually follows the years until children are independent, a spouse reaches stable earnings, or key debts are cleared. For a 20-year horizon, a 3% inflation rate and 6% return imply a real rate near 2.9%. That real rate reduces the present value compared with a zero-growth assumption, and it rewards conservative expectations.
Debt and goal funding
Capital needs are added directly because they are typically one-time obligations. Common items include mortgage payoff, personal loans, medical bills, and final expenses. Education funding may be staged, but budgeting a single lump sum creates a simpler, safer target. Enter emergency funding if you want immediate liquidity for the first 6 to 12 months.
Existing resources and gaps
Subtract current coverage and liquid assets you would realistically dedicate to family support. The tool shows a gap that cannot fall below zero. If available resources exceed the estimated need, consider reallocating savings goals rather than eliminating insurance, because coverage also protects against timing risk and market downturns.
Using the premium estimate
The monthly premium field is a planning lever, not a quote. By entering a cost per $1,000 of coverage, you can convert a gap into a budget range and compare scenarios. For example, a $500,000 gap at $0.60 per $1,000 suggests $300 per month. Tighten inputs, rerun, and document decisions with CSV or PDF. Also compare a short replacement period with a longer one to understand tradeoffs. Small changes in real rate can shift the present value, so record your assumptions alongside results. Revisiting the inputs annually keeps coverage aligned with income growth, debts, and family milestones.
FAQs
1) What does “present value of income” mean?
It is today’s lump sum that could fund the selected annual replacement amount over the chosen years, using your return and inflation assumptions to keep purchasing power consistent.
2) Should I use gross or net income?
Start with gross income for a broad view, then refine using net income if taxes and benefits are stable. The replacement percentage helps bridge the difference in a simple way.
3) How do I pick inflation and return rates?
Choose realistic long-run assumptions. Many planners test conservative returns and moderate inflation, then run a second scenario with more optimistic inputs to see sensitivity.
4) Why include an emergency fund if I have insurance?
Insurance proceeds can take time to process. An emergency fund provides immediate cash for bills, short-term childcare, travel, and administrative costs during the first months.
5) What assets should I subtract as “available”?
Use liquid assets you would actually devote to support, such as savings and cash investments. Avoid counting retirement accounts or illiquid property unless you plan to access them.
6) Is the premium estimate accurate for buying coverage?
No. It is a budgeting estimate. Actual premiums depend on age, health, policy type, term length, and underwriting results, so confirm pricing with a licensed provider.