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A Quick Look at Life Insurance Needs
Shared by Strong Valley on July 7, 2021
Life Insurance Planning
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IN BRIEF
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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.

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. 

The information contained within is believed to be from reliable sources. However, its accurateness, completeness, and the opinions based thereon by the author are not guaranteed – no responsibility is assumed for omissions or errors. The views expressed herein reflect our judgment now and are subject to change without notice and may or may not be updated. Nothing in this document should be construed as investment, tax, financial, accounting, or legal advice. Each prospective investor must make their own evaluation and investigation of any investments considered or of any investment strategies described herein (including the risks and merits thereof), should seek professional advice for their particular circumstances, and should inform themselves as to the tax or other consequences of any investments or services considered or described herein. Please see other important disclosures related to StrongValley.com

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