Life Insurance

hope33709 · 06-30-2009, 05:49 AM

This is my first life insurance client, need to know what to write for a 30yr female, non-smoker, 5'7", 160lbs. no meds.
She is not sure how much coverage to go for. What kind of questions should I ask to determine coverage amount?
And would ROP be best for her?

Thanks all

Markingriffin · 06-30-2009, 08:06 AM

Originally Posted by hope33709

This is my first life insurance client, need to know what to write for a 30yr female, non-smoker, 5'7", 160lbs. no meds.
She is not sure how much coverage to go for. What kind of questions should I ask to determine coverage amount?
And would ROP be best for her?

Thanks all

Insurance is protection. 1st thing is to see what all she needs to protect. Does she have kids, or a home? How long does she need the protection for?

You need to get some kind of a Needs Analysis Form, until you learn what kind of questions to ask. Click here for a simple one.

I would show her both options on the term if that is what she needs.

briko3 · 06-30-2009, 09:28 AM

This is the formula I use:

1) Take the annual household income that they need to survive as a family
2) Take that amount and subtract ANY income that isn't hers from it. That will give you the amount she makes that has to be replaced. (you can take away certain things like extra clothes, etc. that you think her family won't need if she's gone)
3) Then you take the return she feels she can SAFELY get if she were to invest money in an account where she would have access to the money (usually clients will say 6%)
--> you will then convert that amount to a decimal (ie., .06)
4) Take the amount from #2 and divide it by the decimal in #3
5) That's the amount she would need to invest so she can draw off interest in the amount required to replace her income. She's now officially replaced as far as income.
6) Make adjustments based on cost of living increases, college for the kids, debt repayment, etc. depending on what she wants. (just add the debt and how much she thinks college will cost in 18 years or whatever. You can also do the calculation for her...I think college is going up an average of 7% per year)

That's it. Simple.

Hope this helps,
Chris

Originally Posted by hope33709

This is my first life insurance client, need to know what to write for a 30yr female, non-smoker, 5'7", 160lbs. no meds.
She is not sure how much coverage to go for. What kind of questions should I ask to determine coverage amount?
And would ROP be best for her?

Thanks all

souldeux · 06-30-2009, 11:20 AM

There's a needs calculator over in this thread: EXCEL Life Insurance Needs Worksheet

Make sure to use the second link, because in my Infinite Retardation I broke the first one.

voliosclark · 06-30-2009, 02:09 PM

30 year old should be able qualify for up to $1M without showing much financial justification. Biggest issue is how much is she looking to spend? You can back into a death benefit from how much she wants to pay and determine if that is enough coverage.

For example: $1M of 30 YRT with Trans is $730 per year (at Preferred Rates).

Ami · 07-01-2009, 01:06 AM

Originally Posted by hope33709

This is my first life insurance client, need to know what to write for a 30yr female, non-smoker, 5'7", 160lbs. no meds.
She is not sure how much coverage to go for. What kind of questions should I ask to determine coverage amount?
And would ROP be best for her?

Thanks all

You have 3 questions here - in the order, as presented
1. What type of coverage should be purchased?
2. How much coverage would she need?
3. Would ROP be suitable for her?

Questions #2 and #1 are the most important. I'd start off with Question #2: "How much coverage would she need?". A quick and simple, yet quite useful and free online needs estimator is found at WinQuote(tm) - Life Insurance Needs Estimator There is another tool there which is a combination of a step by step presentation and a much more thorough needs analysis. That analysis and presentation tool is the 8th function down the list at WinQuote(tm) - Financial Tools and is named "Step-by-step life insurance needs analysis"

Question #1: "What type...". IMO, the best type is the one that will provide the most coverage for the amount of premium that the client can comfortably afford and for the longest level premium period within the affordability limit. To arrive at the answer to this question, you can quickly and easily compare the face amounts that are being offered by various carrriers and for various products for the amount of premium that is comfortably available in the client's budget.

Question #3: re the ROP. I'd leave that one for last as I'd rather use available premium dollars to first get as much of the need covered and for the longest possible level premium period. There are pros and cons to the ROP.

If the contract is kept to the point that the ROP would be payable, the rate of return may be quite decent; however, that "if" is quite a big "if" and, in practical experience stats, not highly probable. Moreover, the added cost of the ROP decrease the IRR in the event of a death claim... and, of course, the premium paid for the ROP is usually forfeited in the event of a death claim. On the other hand, the ROP may be a buying incentive for those people who are very confident that they will not die during the term of the contract and that they will keep the contract to the ROP qualification point.