Article

A Quick Look at Life Insurance Needs

Life Insurance Planning

Have you ever wondered how much life insurance is enough?

How can you design a plan for you and your family’s future financial needs? This article introduces a simple way to relate life insurance needs to your personal financial goals.

July 7, 2021
Life Insurance Planning
Important Disclosure: Content on our website and in our newsletters is for informational purposes only. The information provided may (or may not) directly apply to your situation. We recommend that readers work directly with a professional advisor when making decisions in the context of their specific situation.

Have you ever wondered how much life insurance is “enough”? One general rule of thumb says that you should buy an amount equal to five to seven times your annual income. Sure, it may be a reasonable guideline, but this method does not relate life insurance needs to your personal financial goals.

Design a Needs Analysis Plan

A better method may be to implement a “needs analysis.” This process helps you determine the future short-term and long-term financial needs of you and your family. Once your needs have been identified, you can design a plan to help assure that money will be available to meet those objectives.

Needs analysis is not the highly technical financial planning associated with business ownership or planning for the conservation, distribution, and coordination of wealthy individuals’ assets. Rather, it is appropriate for everyone. By assigning a specific dollar value to each item or “need” you want to provide for, needs analysis zeroes in on what may still be required, in terms of additional capital, to get the job done.

Identify Your Priorities

Through specific questions designed to identify areas of concern, you will be able to establish your financial priorities. Here are some examples:

  • What is most important to you?
  • How would your objectives be affected in the event of the premature death or disability of you or your spouse?
  • Is your current savings program adequate to accomplish your financial objectives?

Personal and Financial Perspectives

For most people, needs typically revolve around attaining and maintaining a comfortable lifestyle. This often translates into a good home, the advantages of a college education for your children, enough income left over for leisure activities, and last but not least, a retirement income sufficient to maintain your lifestyle when your working years are over.

While saving and investing will undoubtedly be part of your overall planning strategy, it takes time to accumulate a pool of capital. One advantage of life insurance is that it creates an instant estate, which helps assure that money will be available to aid in meeting specific goals in case an untimely event (such as an early death) deprives you of the time required for wealth accumulation.

A complete needs analysis helps determine what is important in creating and protecting the lifestyle you and your family enjoy. Even if current income doesn’t stretch far enough to satisfy all of your future financial objectives, the needs analysis process will help you establish and focus on your priorities.

Your insurance professional can guide you through this comprehensive analysis to identify your goals and to show you how life insurance can help to meet each of your objectives. By initiating a plan of action, you can create an estate that will provide financial assets should you no longer be able to do so yourself. 

Other content you may like

  • GRATs: A Planning Tool for Business Succession

    GRATs: A Planning Tool for Business Succession

    September 27, 2022
    Have you heard about the ways to reduce your family’s tax burden while keeping your business intact? With this planning tool you can put all or part of your company’s stock into an irrevocable trust that pays you, the business owner, a fixed income for a specified number of years, being especially useful if a business or estate assets will appreciate in value.
    Read this Article
  • Money Mistakes that Young Professionals Can Make

    Money Mistakes that Young Professionals Can Make

    January 16, 2024
    We all need to be mindful of our finances and avoid common money mistakes that can have long-term consequences. Being aware of these pitfalls early in your career can build a life-long foundation of healthy habits with your money. Here are some proactive tips that can help you and your family create a more secure financial future.
    Read this Article
  • What's Driving the Market

    Podcast Highlight - Taming Inflation with Rate Hikes

    June 14, 2023
    After unprecedented rate hikes, did they work? The team discusses the changes to inflation and gives insight into where rate hikes may go from here. Are there indications of how far rates can rise without causing more problems?
    Read this Article
  • male financial expert on video thumbnail

    Video: Solve It – Preparing for Change

    January 5, 2020
    The old model of simple diversification using US Stocks and Bonds may need to be expanded into a more diversified approach. Strong Valley takes each client situation into account and implements more complex strategies and models where applicable.
    Read this Article
  • The link you have selected is located on another server. The linked site contains information that has been created, published, maintained, or otherwise posted by institutions or organizations independent of this organization. We do not endorse, approve, certify, or control any linked websites, their sponsors, or any of their policies, activities, products, or services. We do not assume responsibility for the accuracy, completeness, or timeliness of the information contained therein. Visitors to any linked websites should not use or rely on the information contained therein until they have consulted with an independent financial professional. Please click “Continue to Link” to leave this website and proceed to the selected site.
    phone-handset