“How much life insurance do I really need?” is not a difficult question to answer.  A well-designed needs analysis program can usually provide the solution.  InsMark has a good one -- Survivor Needs Analysis -- in the InsMark Illustration System (located on the Personal Needs Analysis tab).

But first I’ll use our Cash Flow Analysis module from that same location to determine four different evaluations, and then introduce Survivor Needs Analysis.

Be patient!  The end result will include a very nice sale of cash value life insurance.

Case Study

(Using Basic Planning as a

Pathfinder to Advanced Planning)

John and Mary Mason have recently purchased a $1,000,000 term policy on John.  Their reasoning is: If something happens to John and that $1,000,000 can earn 5.00% (pre-tax), it can provide $50,000 of family income over 20 years while conserving principle.

What about income tax and inflation?  Let’s see what they have to do to meet this goal.

Note:  Due to rounding over a twenty-year analysis, some of the numbers end up higher or lower than expected by a dollar or two.

1.	Conserve Principal (Cash Flow Analysis module) Assuming no principal is spent, $1,000,000 could produce annual after tax cash flow of $36,145 for 20 years while conserving the principal amount of $1,000,000.  Total after tax cash flow is $722,900. Click here to review this report. Note:  If the U.S. experiences just 3.00% inflation, by the 20th year that $36,145 will have buying power of just $20,613.
2.	Conserve Principal - Adjustment for Inflation (Cash Flow Analysis module) Assuming no principal is spent and a 3.00% factor for inflation is included, the annual after tax cash flow drops to a starting point of $27,890 increasing gradually to $48,906 in year 20 -- still conserving the $1,000,000 of principal.  This approach protects the purchasing power of the $27,890.  Total after tax cash flow is $749,426. Click here to review this report.
3.	Spend Principal (Cash Flow Analysis module) Spend principal to increase the cash flow -- this could produce annual after tax cash flow of $69,361 with no inflation offset.  Total after tax cash flow is $1,387,220.  There is no principle remaining. Click here to review this report. Note:  If the U.S. experiences just 3.00% inflation, by the 20th year that $69,361 will have buying power of just $39,566.
4.	Spend Principal - Adjustment for Inflation (Cash Flow Analysis module) Spend principal with a 3.00% inflation offset to the cash flow -- the annual after tax cash flow drops to a starting point of $53,521 increasing gradually to $93,849 in year 20.  This approach protects the purchasing power of the $53,521.  Total after tax cash flow is $1,438,126.  There is no principle remaining. Click here to review this report.
5.	Conserve Principal - Adjust for Increased Cash Flow and Inflation (Survivor Needs Analysis module) Conserve $1,000,000 of principal and maintain $53,521 of cash flow (same as #4) plus the 3.00% inflation adjustment.  Total after tax cash flow is $1,438,129; however, this requires additional life insurance of $478,894 as reflected in the Bar Graph below from our Survivor Needs Analysis module.

Click here to review this report.

Purpose of the Analysis

What has been the purpose of this analysis -- to make a term insurance sale of an additional $478,894?  No, it is designed to induce John and Mary to use Survivor Needs Analysis for a more comprehensive look at their overall survivor needs coupled with the assets they have to apply on those needs -- not just the life insurance policy.  If the most effective use of their current life insurance means they need almost 48% more coverage, maybe they should be more precise in their overall evaluation.

Determining the financial needs of survivors is a dying art in the life insurance business, and I am very proud we are keeping it front and center in our software.  Speaking of “proud”, MONEY magazine ran a contest a few years back entitled “The MONEY Life Insurance Test”.  Producers from MassMutual, Northwestern Mutual, and several other top companies participated.  Our Survivor Needs Analysis provided the analytical tools used by State Farm Agent, Thomas Davis, for his first place finish in the contest.

Click here to read that report from MONEY magazine.

We also used our Survivor Needs Analysis module effectively in four recent Blogs (using different case data).  The ultimate goal of those Blogs is to persuade the clients that they need to add retirement planning to their survivor planning.

I think you will be very interested in how we convinced them to acquire substantial cash value life insurance policies on both husband and wife with combined annual premiums in excess of $12,000 (up from the few hundred dollars that term insurance costs them) yet require no out-of-pocket cash flow from them.  Blogs #77 and #47 below involve cash flow neutral analyses which means that the premiums for the cash value policies are paid from assets which are replaced (and then some) by way of the policies’ values.

I recommend you first view the short videos in Blogs #76 and #77; then, if you are interested in more details, review Blogs #46 and #47.

A Quick Video Review

Blog #76: Smart Use of Term Coverage for Funding College Costs

(6 ½ minutes)

Blog #77: Integrated Planning for College and Retirement

(8 ½ minutes)

A Detailed Analysis of the Same Data

Blog #46: Let’s Make Sure the Girls Go to College

Blog #47: Tom and Kristin’s Retirement Planning

Note:  Business owners also need to know “how much” life insurance to carry on key executives.  That’s why we also have the Key Executive Life Insurance Calculator located in the InsMark Illustration System.  If this interests you, check out Blog #44.

 

InsMark’s Digital Workbook Files

If you would like some help creating customized versions of the presentations in this Blog for your clients, watch the video below on how to download and use InsMark’s Digital Workbook Files.

Digital Workbook Files For This Blog

Blog95.zip

Download all workbook files for all blogs

Note:  If you are viewing this on a cell phone or tablet, the downloaded Workbook file won’t launch in your InsMark System.  Please forward the Workbook where you can launch it on your PC where your InsMark System(s) are installed.

 

Licensing

To license the InsMark Illustration System, visit us online or contact Julie Nayeri at julien@insmark.com or 888-InsMark (467-6275).  Institutional inquiries should be directed to David Grant, Senior Vice President - Sales, at dag@insmark.com or (925) 543-0513.

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