Full Life Value?

[James]

Obviously someone brought up the idea of Full Life Value should be used outside of the Needs theory on the old forum. I find this expression of Life Value to be a Leap type of expression. While I think the idea is good yet just how practical is it for most?

For your Insurance Needs to you go along with the idea of Full Life Value or do you beleive in insuring for ones needs?

 

[Sam]

I think that the ideal needs to be seperated from the practical. If you choose to make your living selling life insurance, are you going to refuse to deal with people who just don't get it? Of course not. You can be pissed at other agents who don't at least give it a shot but the bottom line is that you don't give up a small sale just because they refuse to see the need for more. If you do, let me have their number, because someone is going to make the sale.

Personally, I have a 5 million dollar policy on both my wife and myself. It is probably excessive, but if something happens to me, I know that it will go right to my trust that distributes it in the way I want it to. That means that if I am gone, I can still take care of my family.

I have been told that a prospect doesnt want insurance because he doesn't want his wife's new boyfriend spending his hard earned money. That is a question of perspective and no needs analysis will overcome it.

 

[Stevuke]

Human Life Value is Crucial

I can't concieve of having a conversation about life insurance without discussing human life value. That's like selling car insurance without talking about the value of the car.

Life insurance is there to replace the economic value of the person. If your house burns down or your car breaks down - do you want to replace it with a bicycle or move into a shack? Of course we get full replacement value.

Of course we must let our clients know that it's not all or nothing. but however much they can afford - the ideal is full human life value.

But when it comes to life insurance, AUM hungry advisors tell people to buy the smallest amount of coverage possible and put the rest of the money into the market. Put it in your 401(k), IRA, 529.

Lock it up and have no access to liquidity nor adequate coverage, but boy will your statements look big! You'll feel rich - until you try to take distributions...

 

[James]

First of all, lets just do away with the analogy of PC Insurance and Life and Health Insurance. The two are not anything alike, I nor your client is a physical piece of property like a House or Auto. This idea of people being like property is long ago in our society done away with. While the idea of full life value is applicable with people that can afford it or desire it is great but lets face it, it isn't practical. Not only does full life value of life concern Life Insurance lets not forget, DI and LTC you must deal with. Nor is a 30 yr old starting out have the same life value of a established 50 yr old, he or she may have more potential but their value can not be compared dollar for dollar in any manner except speculation. If one is projecting the value of life of a 30 yr old starting out then you are speculating not giving true value of life but speculating of the value.

Bascially what I'm saying is the younger or not so establish people should not be placed within the idea of full life value as in Leap. It seems to me as putting the cart in front of the horse. Lets look at exactly what Full Life Value should encompass, Life, DI, LTC, Health, Retirement, Education etc etc...

Life, in Full Life Value theory the only exceptable plan is that of Perm. Insurance may it be W/L or UL. Now I'm assuming one can bring the price tag down by using a Term Mix for the Speculation of future value and adjust the Perm. side upwards as they can afford it within the total plan. Still though, we're looking at a pretty dime either way. If we look at a household and yearly earnings is 50 grand the needed amount would be around 1 mill, now this is on two lives since most households have two earners. So exactly how much is a Million Dollar Perm Insurance going to cost? Okay lets mix in Term and say only half million with half million Term Policy to fill the gap, still a pretty dime!

DI, what full Life Value Plan would be useable if the persons potential of income isn't protected. Now get this depending upon occupation the cost is going to vary wildly. Some Occupation will not even qualify, such as a Used Car Sales, one company say UC will rate as a 2A while others will consider it uninsurable siting the economics of the employment field. Now if the person is a truck driver just how pricey is that going to be, maybe impossible outside of the workplace policy. Yet not available to many as they are not employees but Independents in one form or another.

LTC, now we have to protect our savings or assets don't we? Why bother saving money at all if it can disappear with a single incident. Okay we all can agree that LTC is the cheapest of all three, well depending upon age and other factors but I'm concentrating here on the 30-50 crowd with family and both spouses working for the most part. This crowd I find that I gravitate to, much overlooked and usually in great need of aid in their Insurance Needs.

Retirement, 10-15% of income place somewhere. Not important for the discussion on "where", just that 10-15% is basically agreed on by most as a good amount for retirement savings. Now if you placed that along with Life Insurance Policy as in a EIUL, Annuities, 401 or whatever, it should still be at minimum 10%.

Education, now this is open ended. I'm strictly a "Let the Brats get their own Education" type of person. Yet we all in the end want to help if not down right pay for it, in my case the other spouse demand. So this amount of money needed can vary greatly, yet lets look at about 2% of income as a good average.

Now we have to look at all other expenses, and desires of todays family such as the yearly mega vacation. So for the Full Value People please help me understand how you balance all of this for 90% of the population or those between 30-70 grand a year household with children, obviously a key market and one that is greatly underserve in Insurance and Financial Industry. Even the head of the CFP Board has openly said that his or her industry have overlooked the general population and their plans are nothing more then a pipe dream for the vast majority of people. In other words the Financial Planners are being force or hopefully to understand that much of their premise of practice is unpratical at best.

So I have the same concerns about Leap and the claims of finding the money. Usually when I ask the users of Leap they say its a secret! I have to wonder if the practioners of Leap and other plans espousing Full Life Value isn't fallen in the same pithole as the CFP?

I understand the idea of "Found Money" as espouse by such ideas of saving lunch money, coffee money, basic 101 priorities financing. Yet life is life, and I find in todays world asking for too much pain as in rethinking the yearly vacation or bass boat is just unpratical at best. Now you have exceptions but for the most part its nothing I would want to stake my future income on.

 

[Stevuke]

Full Life Value

First of all, human life value is not predicated on the comparison of a person to a piece of property.

It's interesting that you attack my premise with the fact that a 30 year old's HLV can't be calculated the same way that a 50 year old's can. That is why a 30 year old can generally be underwritten for a larger sum than a 50 year old earning as much. That's basic underwritting....

Loosing your home or car is a loss that we insure against. Loosing a bread-winner is also a financial loss and must be insured against the same way. If you agree that less than full replacement value would be inadequate in P&C, it is no more adequate here. What is a worse loss financially? Loosing your home of loosing a breadwinner? You can buy another house as long as you are around...

The notion of there being a human life value is the idea that a person's income over time has a "present value" that can be approximated. Why on earth should we insure for less? I would appreciate if any response to this post included an answer to that question.

As far as disability, I believe that disability is usually more important than life insurance and should be gotten out of the way first. What if something happens but it doesn't kill you? Without your income you have nothing. You fund nothing, you don't save. You just liquidate.

As far as someone not being able to afford HLV - it could be true in some cases, but generally that's rediculous. Term is dirt cheap. A 35 year old making $50,000/year can afford the $1-2,000/year for $1MM of coverage. If you love your family, that's not a lot of money at all. Let's get real!

For the record, I value permanent insurance, I think whole life is the most underrated product out there, I think most people should have it, even if it is a hardship to afford (that is generally when it's most important) - but we have to make sure that they have an adequate Amount of coverage before we can responsibly talk about Type of coverage. Even still we must cover DI, savings and investments, wills&trusts, P&C...before we worry about perm vs. term.

Not sure where the discussion of "found money" and all that other stuff about leap and college funding came from....

But if we don't educate our clients about HLV in discussions about life insurance, we are not only doing a disservice, we are not only enabling people into an unsound plan with a false sense of security,...we are self serving.

Best!

Steven Druckman

 

[James]

Re: Full Life Value

First of all, human life value is not predicated on the comparison of a person to a piece of property.

It's interesting that you attack my premise with the fact that a 30 year old's HLV can't be calculated the same way that a 50 year old's can. That is why a 30 year old can generally be underwritten for a larger sum than a 50 year old earning as much. That's basic underwritting....

I'm not attacking your idea, just calling it Subjective and Inpractical theory of selling Insurance. I understand why a 30 yr old can be approved for a higher multiple then a 50 yr old but that isn't what I was getting at. Fact is, you don't know where financially that 30 yr old is going to be in 20 plus years from now. One can assume that any certain individual will make more, its not uncommon for one to realize a bulk of life's earings will come once they reach their 50's. Yet this today just isn't as a certainity as it once has been, back when this was true the individual had on average 2 jobs throughout their working years compared to what today, 7 jobs?

Lets also look at a newer trend and one that isn't going to improve, that is that 65 isn't the magic age as it once was. Many today in their 30's will not retire at age 65, they may not retire at 70. So your ascertion of Term is today more hidious then it was years ago. As we all live longer and live through things that would of been a sure killer 20 years ago just why would you insure HLV via Term Insurance?

Term as it is applied here is good for coverage that has a certain date to end. Such as a Debt someone wants to secure, maybe a House? So suggesting that Term to be used here is highly dubious at best. If one is out there securing people's HLV via Term I would suggest is out just trying to pad one's commissions! Or you are simply trying to fix the obvious inpracticallity of your theory! Don't get me wrong I use Term also, usually a mix but the term is always short term, very short!

 

[Stevuke]

Re: Full Life Value

I'm not attacking your idea, just calling it Subjective and Inpractical theory of selling Insurance.

Not sure why it's at all impractical. Please explain.

I understand why a 30 yr old can be approved for a higher multiple then a 50 yr old but that isn't what I was getting at. Fact is, you don't know where financially that 30 yr old is going to be in 20 plus years from now. One can assume that any certain individual will make more, its not uncommon for one to realize a bulk of life's earings will come once they reach their 50's. Yet this today just isn't as a certainity as it once has been, back when this was true the individual had on average 2 jobs throughout their working years compared to what today, 7 jobs?

This all comes in to play when we determine the correct amount of insurance (read HLV). We look at what he does, how long he's been doing it, and how long he's likely to continue doing it. Not sure what your point has to do with anything I said...

Lets also look at a newer trend and one that isn't going to improve, that is that 65 isn't the magic age as it once was. Many today in their 30's will not retire at age 65, they may not retire at 70. So your ascertion of Term is today more hidious then it was years ago. As we all live longer and live through things that would of been a sure killer 20 years ago just why would you insure HLV via Term Insurance?

So let me see if I understand; are you saying that since we are living longer and retiring later, having the proper amount of coverage is less important? Am I also correct to understand that the aforemention means that you'd rather sell an insufficient amount of perm than the correct amount of term?

What if he's hit by a bus? What about his family? Do you even care about his family? Or are you too intoxicated by the prospect of a rich perm life sale that you've turned a blind eye to their need to insure their breadwinner? I fail to see how you could possibly be considering what is best for THEM in all of this. It sounds to me that their is another unmentioned party who's a bit more important to you.

Term as it is applied here is good for coverage that has a certain date to end. Such as a Debt someone wants to secure, maybe a House? So suggesting that Term to be used here is highly dubious at best. If one is out there securing people's HLV via Term I would suggest is out just trying to pad one's commissions! Or you are simply trying to fix the obvious inpracticallity of your theory! Don't get me wrong I use Term also, usually a mix but the term is always short term, very short!

I am a HUGE believer in permanent coverage. But to put that before the correct AMOUNT of coverage... For Shame! And you say I am padding my commissions?! How dare you!

By the way, I ask again, what is this impracticality that you speak of?

(for the record, I believe in having as much term as you need, and as much WL as you can afford. Most of the time I insure a good portion of HLV in WL. But HLV is most important, not the fact that it's WL. )

Best!

Steven Druckman

 

[James]

Re: Full Life Value

[/quote]

Not sure why it's at all impractical. Please explain.

[/quote]

Cost Vs Risk. I have serious problems on selling life insurance base on fear, such as the idea of being hit by a bus tomorrow! It could happen but the Risk is somewhat small too say the least.


[/quote]This all comes in to play when we determine the correct amount of insurance (read HLV). We look at what he does, how long he's been doing it, and how long he's likely to continue doing it. Not sure what your point has to do with anything I said...[/quote]

If we are looking at a family as you suggested where does the spouse fit in? Since the spouse is the one of concern why not meet the needs of the spouse? If that is 20X as you suggest, well find so be it! If not then not.

[/quote]So let me see if I understand; are you saying that since we are living longer and retiring later, having the proper amount of coverage is less important? Am I also correct to understand that the aforemention means that you'd rather sell an insufficient amount of perm than the correct amount of term?[/quote]

Insufficient amount? I'm saying that is very subjective, it would seem to me that you have no way of knowing untill we agree on the real need of the beneficiary. Why would you think that 20X is needed and this seems to be your starting point? Or I guess I can ask what pays more in commissions, 250 grand W/L or U/L or 1 Million Term Policy? Probably a toss up, so lets assume this is about the way different people view Life Insurance shall we?

I sell Life Insurance base on the need of the beneficiary not on the life of the Insured.

 

[Stevuke]

Re: Full Life Value

Cost Vs Risk. I have serious problems on selling life insurance base on fear, such as the idea of being hit by a bus tomorrow! It could happen but the Risk is somewhat small too say the least.

Isn't that why we buy life insurance? To protect against the risk of premature death.

That isn't based on fear. It's based upon the value of the income we are insuring. Is it "based on fear" to tell someone to get full replacement value on P&C.

Cost Vs. Risk makes sense in investments and hedging positions. It is completely absurd when it comes to insurance.

Do we do a cost/risk analysis when determining the extent to which we insure other risks? No, we insure full replacement value in everything.

If our car breaks down, do we want to replace it with a bicycle? If our breadwinner dies, do we want to reduce our life style, or be preasured to re-marry? Is that what you want for your clients for whom you are supposedly an advocate?

If we are looking at a family as you suggested where does the spouse fit in? Since the spouse is the one of concern why not meet the needs of the spouse? If that is 20X as you suggest, well find so be it! If not then not.

Huh?! Her income was neccessary to maintain their life-style and savings. To keep them at their CURRENT LIFE-STYLE we must replace his income entirely.

Her income doesn't offset the need for his. They were a 2 income family. One income has been lost. It needs to be replaced.

If you wish to respond meaningfully to this post, you MUST explain the following:

How do you intend for them to maintain their life style, financial condition and savings if you don't replace the lost wage earner completely?!

You could do a needs analysis but if you don't replace the entire lost income you will be reducing the aforementioned. Tell me if I'm wrong...

Insufficient amount?

Absolutely! If they loose his income and the insurance doesn't replace it completely, that is insufficient!

I'm saying that is very subjective, it would seem to me that you have no way of knowing untill we agree on the real need of the beneficiary. Why would you think that 20X is needed and this seems to be your starting point? Or I guess I can ask what pays more in commissions, 250 grand W/L or U/L or 1 Million Term Policy? Probably a toss up, so lets assume this is about the way different people view Life Insurance shall we?

It is only subjective in so far as we can't predict his income without a crystal ball. But based on a reasonable projection of his future career we can ascertain a Present Value and insure him for that amount quiet OBJECTIVELY.

Let me grant for a momment that "needs analysis" is more objective. Is it better to insure for less based on needs analysis just because that is more objective. If a reduced life-style is more objectively attained is a reduced life-style acceptible? Why should they have to suffer an economic loss upon a bread-winner's death when we can insure against that the same way we insure against other losses?

And needs analysis is IN NO WAY less subjective. It is likely more subjective!

We can no more predict inflation, unforseen expenses, changes in market returns..etc than we can predict his future income.

So the assumptions we make in needs-analysis planning are no more sound or "objective" than the assumptions neccessary to derive a present value of future income (which we call HLV).

But if we do our best to replace his income, we are coming as close as possible to preventing any economic or life-style loss that his death might have brought about.


I am truly glad you ask why 20X income. Really Good question. It's really important that all agents/planners etc understand this.

Here's a simplified answer/explanation. If we assume 5% is a reasonable rate in a fixed income portfolio (let's call it a bond portfolio) then 20X his income will replace it entirely.

In algebra: .05 *20* Yearly Income =Yearly Income. or: 5% of 20X= X

To get a little more technical, over the course of about 40-50 years if you make the future-value zero - the income can go up about 3-4% a year to account for raises. Play with it on and HP calculator.

I sell Life Insurance base on the need of the beneficiary not on the life of the Insured.

In so doing in the event of the insured's passing the beneficiary will be reduced to the projections of your needs-analysis and will not have the maximum insulation.

In my book that is a horrible disservice.

I don't think you are padding your commissions. I truly believe you carry out your profession with good-will, honesty and the desire to help and do what is best for your clients. You have truly conveyed that. I mean that with all sincerity.

But I believe your approach is flawed and harmful.

Perm insurance is a powerful and beautiful product that can achieve great things for our clients. It is seductive and glitzy. It is very east to love selling whole life and it's benefits to our clients and thus forget about the meaning of the proper amount of insurance.

I sell a lot of whole life. I belive in it and I recommend it almost always, but I would rather get sufficient coverage in place and then come back the next day, in a week, in a year or in a decade and convert it, than leave them without sufficient coverage for any length of time.

Best!! Steven Druckman

 

[James]

Re: Full Life Value

If you wish to respond meaningfully to this post, you MUST explain the following:

How do you intend for them to maintain their life style, financial condition and savings if you don't replace the lost wage earner completely?!

You could do a needs analysis but if you don't replace the entire lost income you will be reducing the aforementioned. Tell me if I'm wrong...

Best!! Steven Druckman

While you're not completely wrong in all cases, if the need is there then as I stated, so be it. Yet if the need isn't there to maintain the spouses lifestyle then no, you don't need it. Since we don't have an actual case in question I could come up with a scenario but I'm sure you would come up with a competeing scenario. So in the end it does depend upon the beneficiary and their needs. Not the Insured and their economic value of life.

In most cases I work on the need for HLV just isn't present. Or that any formula such as the 10, 15 or 20X is all inclusive to people. Most of my base of clients are small business owners, medical people such as Nurses, Tech's etc etc.. One thing I find is that people marry alike or they marry within the same economic/social type, while not always true obviously but I don't find to many spouses that are incapable of taking care of themselves and maintain their living standards even at the lost of a love one and their paycheck. Now if one has a case of the airhead spouse that needs full income replacement, then I imagine special funds would be in order. How many times have I seen idiots get money only to spend it in bad fashion and be in a bigger hole after the money is gone, then before they had the money?

Plus I don't start with a new client by telling them they have to spend XXX amount for any particular insurance. While I was never officially with NYL I did go through some basic training with them when I first recieved my License. One thing I like and built my service around was finding the budget of the family and then working from there. At first I concentrated on strictly life insurance, now that I have become more so an advocate for LTC and the HSA. I take the budget that the person/family agrees on for Insurance and I use it to fund their Health (if needed), LTC, DI (if possible) and Life Insurance. I try to balance out the needs of all concerns, I also agree with the notion that all the Insurance in the world is of little use if they can not afford the cost.[/b][/code]