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.
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
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.
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 your 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 Financial Professional
Your financial 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.
