If you’re an insurance agent looking to calculate imputed income for life insurance, this article is for you. Imputed income is the money an individual earns on top of their salary.
It includes things like self-employment profit or business profit, retirement plan contributions, bonus payouts, and capital gains. Imputed income is calculated so that people with variable incomes will have sufficient coverage when they retire.
This post explains how you can calculate imputed income for life insurance in different situations that often come up in the field. It also reviews some of the most common mistakes made by agents when calculating imputed income on a case-by-case basis which can lead to incorrect coverage levels if not addressed properly.
This post explains how you can calculate imputed income for life insurance in different situations that often come up in the field. It also reviews some of the most common mistakes made by agents when calculating imputed income on a case-by-case basis which can lead to incorrect coverage levels if not addressed properly.
Also, Know;
Imputed Income Definition and Examples
Imputed income is commonly used when calculating life insurance ($500,000 death benefit required) coverage levels. But it can also be used in other situations as well when needed. For example, if you run a business that has higher variable profits than the agent receives as the only income – you may ask the agent to calculate imputed income on your behalf so that life insurance won’t kick in until you retire. You may also ask if they can calculate imputed income for an inheritance distribution that will be distributed later.
Imputed income, by definition, is the additional income an individual would earn if they did not have their primary income. The imputed income calculation is derived from a statistical model which measures the amount of money a person would need to save to support their lifestyle in retirement.
Let’s look at one example of how imputed income can be calculated.
Example 1: Imputed Income Requirement Example – Full-time Employee
For life insurance application purposes, you are either self-employed or employed full-time as an employee (pays weekly). If you work full-time as an employee, your employer withholds taxes for Social Security and Medicare every time you get paid.
As you can see in the chart above, your employer withholds 7.65% on your gross income and 15.30% on self-employment income. This amount is added up to calculate your annual earnings.
In our example above, the median annual earnings for full-time workers in California is approximately $37,000 a year. This means that you would need to save a little more than $3,700 a month to support yourself in retirement. This would only leave about $75 per week for saving for everything else – food, entertainment, and savings plans like stocks and property.
You also have a $100 a month self-employment profit that has been withheld by the IRS.
Conclusion:
We hope you enjoyed our blog post on how to calculate the value of life insurance. In the event that the value of the premiums paid for by an employer becomes too high, the coverage would be treated as ordinary income for tax purposes. Please contact us anytime with any questions or concerns by visiting the contact us page. We would love to hear from you!