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Certainly there will be some adjustments with the $5,000: We won't have to worry about Social Security or other employment taxes, but there may also be some increased expenses without a second pair of hands around the house.

Unfortunately, translating this simple calculation into a capital sum (and ultimately to a life insurance need) becomes a little more complicated and somewhat daunting.

If we make simplistic assumptions about the future-for example, the need for $5,000 a month growing at 3 percent each year for a spouse who's likely to live another 60 years-the capital sum needed to provide that stream of income  is almost $2.7 million with no principal remaining when the policy terminates.

With an intermediate step establishing debits and credits for existing assets and immediate expenses at death, this is the process typically brought to the calculation of "how much life insurance do I need?"

 

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