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This is a guest post by Aaron Pinkston who created Clarifinancial (www.clarifinancial.com) to make buying life insurance easier and better. It is the only way to get custom life quotes from multiple agents without any hassle. Seriously. Check it out now to see how easy choosing can be when choices are clear.

How to Budget for Life Insurance

If you are like many young couples or new parents, you may be wondering how to fit life insurance in your budget. And how much should you set aside and plan for to make sure you can meet those premium payments?

Well, don’t worry. The answer is that insuring your life could be easier to budget for than you imagine. Protecting your family is easy to do.

How much life insurance will you need?

If you are already in a budgeting mindset, it will probably be easier to figure out how much life insurance you need than your peers. You already know how much of you income you need to replace if you can no longer be there for your family. Just figure out how long that need will last.

If you need your life insurance to cover expenses for less than 8 years, skip ahead. If you need 8 years or more of your income, try a simple calculation to figure a lump sum differently. Take the amount of your budget you need to replace and divide it by your spouse’s expected investment return; then subtract any investable assets you have.

Here’s an example: You need to replace $3,000 a month of your budget. Your net worth consists of $50,000 of investments and $40,000 of equity in your house. Your spouse or childrens guardian feels comfortable managing money at a 6% (0.06) return.

(($3,000 * 12) / 0.06) – $50,000 = $550,000

Notice I didn’t include the equity in your house because you can’t feed your family with home equity. (Or at least it’s not a financially secure thing to do.)

Neither of these methods will give you the exact amount of life insurance to budget for. Going through your financial plan is about personal choices too. Once you have an amount (or two) of insurance from these methods, talk to your loved ones about how your family will continue financially in your absence.

Go shopping

Now that you know how much life insurance you need and how long that need might last, go shopping. Don’t delay. Do it now.

The sooner you can get accurate life insurance quotes customized to your needs, the better. That means you can finally incorporate your life insurance payments into your budget.

There are a few ways to do this:

1. Call different agents to get quotes over the phone. If they are anywhere close to you, they will probably want to schedule meetings with you in person too. Expect at least 20 minutes per phone call. 1-2 hours for meetings in person. You should call more than just one agent (I recommend at least 3) to make sure your quotes are competitive and benefit you more than the agent.
2. Get instant quotes online from any number of companies. But instant quotes can only be so accurate, leaving a lot of uncertainty. Most online companies either sell insurance like a regular agent with a website, or they sell your contact information to agents who contact you for the aforementioned phone call. This doesn’t quite do it for me.
3. Get customized quotes from different agents anonymously. Another online solution unlike other methods is Clarifinancial. You benefit from agents competing for you without the hassle of unwanted contact. When you find a quote you like, only that one can contact you. Sounds pretty awesome, I know.

When I was 10 years old, my Uncle bought me five shares of Pixar Stock for Christmas.  At the time, I had no idea what stock was, or for that matter what Pixar did.  But at 10, I was a sharp cookie and found out fast.  I learned that at $22 a share, my Uncle had just given me $110 as a Christmas gift, which quickly moved him to the top of my favorite family list.  After pleading and begging with my mother to sell the stock so I could be the richest 10 year old ever, I gave in and decided to keep the stock and hope it went up.

What my uncle and I didn’t realize was that I had an addictive personality.  At 10 my hobbies included playing baseball and collecting sports cards, and I wanted to do nothing other than these two things for the rest of my life.  When owning a stock came along, I was ill prepared to handle it and with my lack of self-control, things got ugly.

In my house, we did not own a computer, so the only way for me to get stock quotes was to wait for the newspaper every day, or watch CNBC and hope that PIXR scrolled along the bottom of the screen.  Every morning I would wake up and grab the business section, and move my finger down the Nasdaq “P” section, looking to see how many quarters or eighths Pixar had moved.  Then, as my laziness gene took over, I would make my mother watch CNBC from around 11am until 3pm (Summer months of course) hoping I would get that 2 seconds of glory when my stock scrolled across.  It rarely happened but the rush was amazing!

This pattern continued for a few months before I realized that I was too young to care about a few dollars here or there and did my best to forget that I even owned a stock.  It wasn’t until I was 18 years old that I remembered I owned 5 shares and quickly ran to Scottrade to find out what it was worth.  Once I realized I had close to $400 in stock, I smiled and sold it, again moving my Uncle up another notch on my family list.

I know that for the most part, my anecdote does not represent the masses when it comes to how they feel when investing money, however, I also know that I’m not alone.  My personality when combined with gambling or investing becomes a very dangerous mix that for the most part has kept me away from investing.  I feared that if I get involved again, I will let it take over my life, and I will live and breathe Wall Street no matter how little is invested.

That’s why I’ve decided on the short three-step plan below to ensure I stay cool and calm when investing.

(1) After finding a stock, pre-set a buy and sell price – Before getting involved, I need to know exactly what my goals are.  If I find a stock that I think would be a good investment, I set a buy price.  If the stock never reaches that amount, I need to have the self-control to move on.  Then, if I do end up buying shares, I set a low and high sell price.  Trying to predict when the pinnacle of a stock occurs is madness and usually leads to losses, so I’ve decided to take my gains when I can get them and move on.

(2) While I own the stock, stay away from it – With Pixar, I drove myself absolutely crazy checking quotes by the minute, and it monopolized my life.  I’ve now decided that I would simply set email price alerts so if my stock reaches the high or low value I determined, I would then sell.  Price alerts can be created using any online discount broker today and this feature has saved me a great deal of time.  In addition, I check quotes only for a few minutes once a week just to make sure I’m keeping on top of things.

(3) Only invest what I can afford to lose – I know it sounds cliché, but it’s the most important of any rule.  If you’re unfortunate enough to find yourself behind in the game, don’t think that you have to throw more money at the problem to fix it.  Chances are the stocks or system you are using is to blame, and no matter how much money you think can fix the issue, it will only lead to more serious problems.

Using these steps, I have once again decided to invest a little bit in a handful of stocks.  So far, I’m on the right track and have not let a few hundred dollars determine how I spend my days. I hope that the stocks I pick are winners but if their not, no biggie.