How much Life Insurance does one need?

[Delta76]

Here is my philosophy on permanent insurance:

1. First question, how much coverage would it take to keep your family living in "their world?"

2. Second question, "how long do you see wanting the coverage?" "Do you plan on passing money on or do you want to die using every last dime?" Most people don't know or their naive. I had two people last week apply for term coverage, one was 65, one was 60. One won't get coverage, the other will be rated. They can't afford the coverage level they desire. I am a fan of keeping the options open. If they had permanent coverage, they can always surrender the policy for the cash value or continue on at an affordable premium.

3. I have a few rules before I will sell a sizeable permanent policy:
-always cover the entire need first, if that's term, that's fine
-I will sell people up to around $100,000 or less of permanent coverage unless they have their roth IRA contribution maxed out and they're fully taking advantage of matching contributions at work (as both apply)

After they take care of the bases, we can look at converting more term to permanent. If they don't care about passing money on or they have a defined time period for the need, I won't hesitate to sell all term. I don't sell the cash value as an investment, I sell it as keeping their options open.

 

[lifesettlementadvisor]

You also need to take into account that when your clients reach retirement, they can do a life settlement on their policy. This will work on a UL or Convertible term policy. It gives them the option of getting a nice bit of cash when they decide they no longer need the coverage.

Also GreenSky, you should remeber this also. if the term you baught is convertible, what disadvantage would you find in selling it at 68?

 

[Cenla Agent]

Can only afford term? A household income of 75k might not seem like much in California but it is well above average in "flyover country."

These guys probably can't afford much more than a term plan. I tend to doubt that most people need life insurance past 60-65, but others argue the other way.

I would write 20 year plans for $500,000 each. If they are preferred, it should cost next to nothing. If their health deteriorates as they age, they can convert as much of it as they want. In 10 years, if they are still healthy, you could check their situation and either write more term or UL. This is basically my K.I.S.S. principle.

I don't care if someone "invests the difference". Life insurance is an expense, not a savings account.

By the way, I'm the first to admit that I am a health insurance agent, not an expert in the financial aspect of life insurance. I just don't see much value in the permanency of a plan that likely will not be needed after retirement.


By the way, I'm 53 and just bought my last term policy. Once I'm 68, I know I won't need any life insurance so a WL or UL would have been worthless. (Then again, I am investing monthly.)

Rick

 

[rocky top buzz]

I'm a big fan of term/perm blend.

If you cannot tell me when you will die, nor what your financial needs willl be at that time, you need at least some permenent coverage.

If you have young kids and only need to provide money to replace their upbringing expenses for a limited period of time, you need at least some term coverage.

 

[SC Local LAH Agent]

YES. I always do 50 to 75% of desired coverage in term with a ROP and the other 25 to 50% In UL. This only makes sense if you do a needs analysis.Break it down like this...

COSTS AT DEATH
Funeral Expense
Final Expense
Estate Taxes

ONE TIME EXPENSES
Mortgage Balance
Other Debts
College Fund
Special Needs


CURRENT LIVING EXPENSES
Surviving Spouses Projected Income
Social Security Survivorship Income
Shortfall

Costs at death and living expenses are going to be the same or close till they hit age 100 so covering that with a Whole Life or Universal Life policy works great. While the one time expenses will change over time thus only need to be covered for 20 to 30 years, perfect for term. Return of Premium I like as in the end no money has been wasted. Makes sense right? Nod your head and look across the table and you will see the client nodding also.

Also I have to say I mostly do health but every January I call all of my existing health clients to set up a first of the year review of their Life insurance needs.

 

[arnguy]

[quote=LGilmore;39302

You are assuming the policy is in a illrevovable trust. Life insurance is not estate tax free. Income yes, ownership determines estate...

I am sure that you mean "irrevocable trust."

 

[Mark]

You can never leave your loved ones too much money when you die. I use a needs
analyzes that the company gave me to figure out much they need.

 

[Mark Weiss]

Hello,

The key is to find an amount that neither leaves your family underinsured nor wastes money by purchasing too much coverage.

In order to determine the optimal level of life insurance coverage it is important to consider which family members should be covered and how much support they will need in the event of your early demise. Adult children living comfortably on their own will likely not need such largesse, while minor children with years of schooling and support ahead of them may need a great deal of support. Likewise a working spouse with a good income will need less financial support than a non-working spouse with a houseful of kids to take care of. It is important to take these matters into consideration in order to come up with the right size death benefit.

The amounts of any home mortgages or home equity loans is an important factor as well. In fact many people purchase term life insurance coverage equal to the outstanding amount of the mortgage, for the express purpose of paying that mortgage off in the event of the death of the policyholder. This can be an excellent and cost effective strategy for homeowners, and the amount of coverage can be adjusted as the balance remaining on the mortgage goes down.

Best Regards,

Mark Weiss
Life Insurance Australia - Ezinsurance.com.au

 

[xrac]

I think human life value should be the goal. Here is a good editorial on the subject:

What's Going On: Selling Life Insurance: Is There One "Right" Way?
By Gordon Bess, CLU, FLMI, Editor

Print Article

 

[DHK]

You need either:
1) Enough insurance to replace your income during your working years (economic life value)
or
2) Enough insurance to replace the assets that you will consume during your retirement. (Again, economic life value)

Just my own simple definition of maximum coverage.