How Much Life Insurance Is Enough?

Determining the correct amount of life insurance protection remains a mystery to many.  Recent studies show that most adults continue to lack adequate amounts of coverage – and close to two-thirds admit to not even having a personal life insurance agent.

A careful planning session that includes a survivor needs analysis is a rarity in the modern financial world.

As a result, millions of Americans shuffle through their daily lives totally clueless as to the potentially disastrous consequences awaiting their loved ones if their life is cut short, which is precisely what happens to approximately 25% of adults before they reach age 65.

How Much Is Enough?

Historically, there have been four “classic” methods for determining survivor needs:

  • Multiple-Earnings Method — Measures the life insurance need as a multiple of annual earnings, usually somewhere between four- and eight-times annual salary.  This overly simple method is fast and easy to calculate, but also is the least reliable.  It completely overlooks important factors such as family size, living expenses and stage of life.
  • Capital Needs Analysis Method — Measures the amount of capital (at some appropriate rate of return) necessary to replace the decedent’s income contribution to the family.  This method assumes that no capital will be consumed in the process, and the full principal amount will pass on to the heirs indefinitely.  While this maximizes the ultimate estate value, it overstates the amount of life insurance needed to replace the lost income.
  • Human Life Value Method — Measures the present value of the lost future income stream to dependents at the death of the insured.  It may also include an inflation assumption and mortality probabilities.  Because it uses the assumption of an ever-growing salary and increasing standard of living into the future, it tends to overstate the life insurance need based on current lifestyles.
  • Comprehensive Needs Analysis Method — This method considers immediate cash needs, debt and mortgage cancellation, income replacement, and college funding needs.  It integrates important factors such as inflation, time value of money, taxes, existing savings plans and Social Security.  Data provided by clients through a comprehensive financial fact finder specific to your client’s needs is used.
Identifying the Price Tags

Part of our job as insurance professionals is to help our clients and prospects identify needs they may have previously overlooked.  Your Life Sales Rep can provide an excellent Financial Analysis Fact Finder to help steer you and your clients through this vitally important process.

Different categories include:

  • Life Insurance for Family Needs
  • Life Insurance for Business Needs
  • Buy/Sell Planning Fact Finder
  • Estate Planning Analysis
  • Estate Liquidity Fact Finder
  • Retirement Planning Needs Analysis

While not every question or category will pertain to any given client, the depth of the fact finding analysis forces both agent and client to consider all potential items that may have relevance to their financial situation.  At the end of the process, clients feel a sense of ownership in the process as the assumptions are based on information they provided.

Make sure you’re prepared to help steer your clients through this vitally important process.

Contact your Life Sales Rep to learn more about our fact finding tools and how we can help you zero in on the true need for each of your clients.

Thinking Beyond The Guarantee

Think of your book of business…  No two clients are alike, right?  Every client that you work with has a different background with a unique set of needs and financial goals.

The recent industry focus on a guaranteed death benefit product to cover all scenarios may be a good solution for some of your clients — but not for all.

Luckily, many carriers now offer competitive life insurance products that provide flexibility by meeting a wide range of needs.  Today’s insurance can be used to accumulate cash value with strong upside potential and protection against market downturns.

Plus, long-term death benefit guarantees and affordable Long-Term Care riders that allow clients to accelerate their life insurance coverage to pay for LTC expenses if they occur.

Think BEYOND the guarantees – come equipped to client meetings with comprehensive solutions to address your clients’ varied needs.

Contact your Life Sales Rep for access to the products and solutions that can secure your clients’ futures.

Is It Time To Upgrade Your Client’s Life Policy?

“Old Insurance” Vs. “New Insurance” – Which Do Your Clients Own?

While the death benefit is quite often the most important feature of life insurance, there are many products available that provide additional features and benefits.

The term “old insurance” applies to policies that don’t have much additional value beyond the death benefit, while “new insurance” would refer to life insurance where clients do not need to die in order to receive a benefit.

We advocate regular reviews of your clients’ insurance policies, to ensure they have the most appropriate and effective product solutions to meet their ever-changing needs.

A policy review may uncover that the existing amount of coverage is no longer reflective of their true need and/or that there’s opportunity to enhance their coverage via the inclusion of living benefits.

Take for example the following:
  • Long-Term Care, Chronic Illness and Critical Illness Riders are just a few examples of “new insurance” benefits not commonly available at the turn of the century.
  • The evolution of Index UL can provide your clients with tax-favored accumulation and tax-free income – which can serve as an alternative solution to the Roth IRA if they are restricted by contribution limits or earn too much income, making them ineligible for the Roth IRA altogether.
  • For younger clients concerned about retirement income, cash value life insurance makes for a great addition to their investment portfolio by providing a diversified source of accumulation.

Most clients only know about “old insurance,” and would likely consider a replacement if they were aware of the enhanced benefits available through “new insurance” products.

Don’t let your clients hear this story from another agent or advisor.  We can provide you with turn-key policy review materials, and will help you to create a list of key talking points you can use to initiate discussions with your clients about their existing policies.

Contact your Life Sales Rep today for more information.

Executive Bonus Agreements 101

In today’s competitive job market, business owners are looking for ways to retain key talent.  Did you know there are Life Insurance based plans business owners can use to reward these vital employees?

An Executive Bonus Plan allows a business owner to select who they reward with no discrimination rules, and have the contributions tax deductible to their business.

Plan implementation is easy, with no IRS approval necessary.

How the Executive Bonus Plan Works:

The Employer:

  • Pays the desired amount of life insurance premium.
  • Has no ownership rights in the policy on the key person.
  • Includes the premium on the employee’s W-2.
  • Deducts the premium as compensation and an ordinary business expense.

The Employee:

  • Purchases a life insurance policy as applicant, owner, and insured.
  • Pays ordinary income tax on the bonus.
  • Or, the employer can pay a double bonus – the employer pays the premiums and then a cash bonus to the executive equal to the income tax liability for a zero after-tax outlay for the executive.
  • Takes advantage of the cash value accumulation and death benefit for personal needs.

Furthermore, the flexibility of this plan is beneficial if the key employee ever chooses to leave the company – the policy is portable and can be funded by the employee’s personal dollars.

The pros to this plan are simple to understand and administer – it is important to the business owner to recruit, reward, and retain these important employees, and generally the tax deductions to the business owner are a great way to get the conversation started.

Contact your Life Sales Rep today for more on this business planning solution.

4 Ways Clients Can Cash Out On Their Life Insurance

Your clients need guaranteed life insurance protection today – but life changes, and so can your clients’ life insurance needs.

A unique feature on guaranteed universal life is a return of premium option, included at no additional charge within the policy, which provides clients with an exit strategy, giving them flexibility for their future.

How does this rider work?

Clients purchase a guaranteed universal life policy and make the required premium payments – the required premium is the amount that guarantees the death benefit through age 100.  On the 15th, 20th and 25th policy anniversary, clients have a 60-day window where they have the opportunity to surrender their policy and get their premiums returned to them.  If they don’t exercise the rider, there will be no impact on the policy.

4 Cash Benefits For Your Life Insurance Clients
  • For Retirement.  A 45-year-old insured receives 20 years of death benefit protection and at age 65 receives her paid premiums back and uses the cash to supplement retirement income.
  • For College Costs.  The insured bought two permanent policies and currently has young children.  One of the policies was a GUL policy with the refund option available.  When the children are at the age to attend college, the death benefit needs of the family change. He can surrender his GUL policy in year 15, 20 or 25 and use the cash to help pay for the child’s college education.
  • For Business Planning.  The insured owns her own business and has a key employee, Tom.  She purchases a GUL policy to protect her business if Tom died unexpectedly.  In year 18 of 20, Tom resigns – and two years later she will receive all of her premium payments back.
  • To Pay-Up Another Policy.  A 55 year old has a need for $5M in life insurance.  He purchases two GUL policies, one for $2M and another for $3M.  When he turns 75, he no longer needs as much coverage.  He surrenders the $2M policy and uses the cash value to pay up the remaining policy.  The insured still has $3M of insurance with no further premiums due.

Contact your Life Sales Rep for more on how the return of premium option can positively impact your clients and your business.