Determining Need for LI

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What method do you use to determine the amount of insurance that a client needs? Human life value, income replacement approach, capital needs analysis? Are there any calculators available that an agent can use to determine need using these concepts? Which methods do you prefer and why?
 
What method do you use to determine the amount of insurance that a client needs? Human life value, income replacement approach, capital needs analysis? Are there any calculators available that an agent can use to determine need using these concepts? Which methods do you prefer and why?

Income replacement tied to survivor needs. There are TONS of calculators. Google Survivor Needs Analysis and you'll have all you need and more.

The human life value formula in general can be used for super affluent folks who wants to lever up their estate. Otherwise, I personally think it's a way to oversell people on life insurance, which often leaves them underinsured in other areas.

Cash needs analysis is where you always want to start. What is the minimum that would take care of immediate and midterm expenses (through grieving period) so that the surviving family has a gentle transition to their next phase of life? I think a couple years worth of income is okay to check that initial box.

This philosophy is not going to help you pump out high Life commissions, but it will help you take good care of most common folk out there. Do that well, and the money will come.
 
Income replacement tied to survivor needs. There are TONS of calculators. Google Survivor Needs Analysis and you'll have all you need and more.

The human life value formula in general can be used for super affluent folks who wants to lever up their estate. Otherwise, I personally think it's a way to oversell people on life insurance, which often leaves them underinsured in other areas.

Cash needs analysis is where you always want to start. What is the minimum that would take care of immediate and midterm expenses (through grieving period) so that the surviving family has a gentle transition to their next phase of life? I think a couple years worth of income is okay to check that initial box.

This philosophy is not going to help you pump out high Life commissions, but it will help you take good care of most common folk out there. Do that well, and the money will come.

Based on what I have seen, I am of the belief that most families will run out of premium dollars long before they hit their full need for insurance, on any calculator. Now, I'm not saying that they can't afford all the insurance they need. I'm saying, they will hit the point where they go, "Wow, this is expensive, I can't afford this." long before they have fully covered their need.
 
Based on what I have seen, I am of the belief that most families will run out of premium dollars long before they hit their full need for insurance, on any calculator. Now, I'm not saying that they can't afford all the insurance they need. I'm saying, they will hit the point where they go, "Wow, this is expensive, I can't afford this." long before they have fully covered their need.

So true. Everyone has a premium tolerance for insurance. Part of the art of doing good work for a client is helping a client steward limited resources for the best total risk management program. That's why I think the human life value approach can do a disservice to most clients. It can influence a client to leave other areas of risk unaddressed or poorly addressed.

Not all the time. It is a legitimate calculation and I think it's healthy to share with a client the full range of possibilities for their education, if nothing else. We educate and let clients choose. Sometimes we need to take the extra step to remind a client that there are other risks to insure besides premature death.
 
Here's what you do: Look up your company's life financial underwriting guidelines book and review each of the ways your COMPANY determines the maximum allowable face amount.

Here's the topics for Assurity financial underwriting:
- Income Replacement
- Older Age Coverages
- Juvenile Insurance
- Charitable Giving
- Deferred Compensation / Split Dollar
- Business Loan Insurance
- Buy-Sell Coverage
- Key-Person Insurance

Now, you look under each section, and it will give you the guidelines - which is also a factor based on current interest rates.

Adults up to age 30 = up to 30x income earned.

Why would an insurance company insure someone up to 30x their annual income? How would that make a survivor "whole" based on their human economic life value?

Well, if interest rates were around 5%, then to replace $50,000 of annual income would cost $1,000,000... or 20x $50,000.

Interest rates are NOT around 5%, but lower... so to replace $50,000 of annual income for 30x would take $1,500,000 at a sustained interest rate of 3.33%

(Btw, that's NOT tapping into the principal at all. Do you tap into someone's principal during their life? Only through the way they wear themselves out working.)

The good news is that term insurance has never been cheaper to help cover the full need for today's interest rate environment.


But take a look at your company's financial underwriting guide. Understand the logic behind their MAXIMUM allowable coverage, and go from there. People can always apply for less.
 
What method do you use to determine the amount of insurance that a client needs? Human life value, income replacement approach, capital needs analysis? Are there any calculators available that an agent can use to determine need using these concepts? Which methods do you prefer and why?

Well it depends on the type of client. Most companies have a needs analysis worksheet you can use to help you gauge and some have one for families/individuals and one for business.

It's helpful for new agents and as time goes on you remember the questions from the worksheet and learn to jot the clients answers on a notepad. For example if it's a husband and wife, the worksheet would ask do the amount of the mortgage, any outstanding debt like car loans or student loans, or what is their annual salary as you would do 10x their annual salary etc.

Many times people can't afford the premium of the suggested face amount even in term insurance but those worksheets help make the case stronger for getting insurance and getting as much as you can. It also helps in making a nice book of term insurance that you can convert later on.

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Not saying your a new agent btw
 
I really don't have clients anymore that have no clue about how much insurance they need. They usually tell me what they want. I may ask them how they got to that number and listen. They will spell out what is important to them that needs to be covered. I may suggest more if they were just plucking from air, but I really don't have that type of client anymore.

One thing to consider is in most cases we can add coverage later. It is much easier to work with a client, than to try and sell a prospect. There is no rule that all the coverage needs to be in place at once, you can build with client too. Just food for thought.
 
I really don't have clients anymore that have no clue about how much insurance they need. They usually tell me what they want. I may ask them how they got to that number and listen. They will spell out what is important to them that needs to be covered. I may suggest more if they were just plucking from air, but I really don't have that type of client anymore.

One thing to consider is in most cases we can add coverage later. It is much easier to work with a client, than to try and sell a prospect. There is no rule that all the coverage needs to be in place at once, you can build with client too. Just food for thought.

No, they know how much they want. To me that is much better. No selling/consulting/pick your phrase to help them understand how much they need. You have a starting point and can work from there. Sometimes you go up and sometimes you go down. But you have a place to start.
 
Re: Determining Need fgor LI

I really don't have clients anymore that have no clue about how much insurance they need. They usually tell me what they want. I may ask them how they got to that number and listen. They will spell out what is important to them that needs to be covered. I may suggest more if they were just plucking from air, but I really don't have that type of client anymore.

One thing to consider is in most cases we can add coverage later. It is much easier to work with a client, than to try and sell a prospect. There is no rule that all the coverage needs to be in place at once, you can build with client too. Just food for thought.

Really solid perspective.
 
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