Answers in Life Insurance

There are endless Rule of Thumbs, calculations, and strategies for determining how much life insurance you need. The difference between an Insurance Salesperson and an Insurance Advisor is that the Advisor will help you determine your actual need while the Salesperson will tell you what they think you need. I know we are suppose to rely on our hired professionals for sound advice, but the amount of life insurance you need is a decision that needs to be your call.

A simple and accurate way to determine the amount of life insurance you need (insert opinion here) is to walk through the scenarios with your spouse. I know it can be a bit morbid, but it's also efficient and effective. Sit down with them and answer these questions: 1. If I died today, what would you need or want? 2. If you died today, what would I need or want? 3. If I died 10 years from now, what would you need or want? 4. If you died 10 years from now, what would I need or want? 5. If I died 20 years from now,... etc.

Some people will answer those questions and find don't need any life insurance. Some will require life insurance only to cover their needs (debt, income,...etc). Some would like enough life insurance to cover their needs AND put their loved ones in a better plan financially (ie "wants"). Once you both answer those questions, then you can take those answers to an Insurance Advisor who can explain how different life insurance policies work and shop for the best rates. Hope that helps!

Invest With Purpose. www.appliedcapital.com

The best way and simplest way to ascertain the total amount of life insurance coverage you need can be based on your debts, replacement income for surviving spouse, and funding of kids education. In my 20 years the most effective financial planning tool that I have used is the FINANCIAL NEEDS ANALYSIS QUESTIONAIRRE to come up with the best possible answer on how much life insurance to own.

Tanya, While all of the answers you've been given are theoretically correct, the one and only answer that's correct in all situations is... IT DEPENDS. It depends on your financial situation as well as your goals and objectives. The second part of my answer is a recommendation to work with an insurance agent or financial advisor who will take the time to understand your individual situation, needs and objectives before making any recommendation. Life insurance can be used for income and lifestyle protection, investment purposes, college funding or to provide liquidity to pay estate taxes. The key is for you and your agent/advisor to determine and prioritize your needs and objectives and then determine whether it makes sense for one or both spouses to purchase life insurance. Beware of agents who try to force "one size fits all" beliefs on you or try to sell you expensive insurance products. Too many will try to sell you an expensive whole life policy when all you might need is less expensive term coverage. Make sure you understand what you are buying and why. I hope this helps.

Hi Tanya! Women are often interested in feeling secure, so having life insurance on the husband is desirable. Many men are comfortable with a more risk and they feel like they would be OK financially without insurance on the wife. I like to think of life insurance as protection for the whole family in case you die too early. In what ways would you want your family protected if you were not there to do it yourself? Many would at least want them to maintain the same standard of living that they currently enjoy. Thinking about how your absence would affect the day-to-day activities, as well as future plans for your kids can help you determine the right amount of coverage.

Life Insurance isn't just for dying, this is the byproduct of financial entertainers leading the discussion on life insurance. True financial planners look beyond the dying aspect. It is useful during your lifetime if you become disabled, send children to school, supplement retirement income, philanthropy or leave a legacy to family, charity or educational instution, church or support your core value when you pass away or wish to provide this during your lifetime. Work with an adviser that will give you the complete picture on how to obtain a rich and full personal and financial life.

First, in cases like your's I like to make sure that should either partner die unexpectedly, that there is enouh money to pay off the mortgage and any debt and provide enough extra to offset the loss of income.

There are two ways to calculate the amount needed. There is what I call the "quick and Dirty" approach. With this we just assume that an amount of 8-10 times income is a sufficient amount fo insurance.

The second way is more involved. It adds all the assets, adds all the liabilities, calculates future needs and comes up with the amount fo insurance. There are some readily accessible free calculators available to use on the internet. Here is one http://www.bankrate.com/calculators/insurance/life-insurance-calculator.aspx

Either way, I recommend that you find a "live" and local independent insurance agent near you. "Live" because if you deal with one of the internet only shops, you won't pay any less, you will just get less service and you never know if that internet only person will still be there in 3 months, let alone 3 weeks.

Hi Eve, There are several ways to figure out how much life insurance a person needs. One method you could use is:

Add: - How much is your mortgage balance? - Total amount of any existing debt (school loans, credit cards, other loans, cars, etc)?

MINUS - Total amount you have saved (liquid assets)

= ANSWER Part I Now, you need to figure out if all of your debt was paid off, how much money would you need on a monthly basis to live (include food, clothing, school, childcare, etc) Multiply the above figure by 12 (annual figure) and divide this by .06 (an assumed rate of return)

= ANSWER Part II

Add to the above "ANWER PART III" a dollar amount for children's college savings if you plan to save for college

= ANSWER Part III

NOW, add ANSWER PART III and ANSWER PART I

For example, mortgage balance of $500k and debt of $100k minus $50k liquid assets = $550k (ANSWER Part I).... Need of $5k/month = ($2k x's 12 divided by .06 = $400,000 = ANSWER Part II)... Now add, $50k for college savings. Therefore, ANSWER Part III = $450,000 So, the total amount of insurance is $550,000 + $450,000 = $1,000,000 This is just an idea of how to solve for how much insurance you need. You can always look for calculators online or speak with a professional like myself.

Melissa Levin, CFP®, CFS CA Insurance Lic #0C56086 714-547-8787

Due to industry regulations, the advisor may not post additional reply comments. If you would like to contact the author, please email her at Melissa.Levin@lpl.com. Melissa Levin is a LPL Registered Representative with, and securities offered through LPL Financial, Member FINRA www.finra.org /SIPC www.sipc.org The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

Dear Sara,

I'm sorry that you have been diagnosed with cancer. I can only imagine how you may feel. With most life insurance policies, you have to complete an application as well as a medical exam (and the insurance carriers will order medical records based upon your application and exam results). As long as you did not have cancer or omit any suspicion of it on your application, the insurance carriers typically do not and cannot raise your rates. One of the reasons that people purchase life insurance is in case something like this does happen (I'm hoping your cancer is in the early stages, but sometimes people are not diagnosed until it is too late - my father recently was diagnosed and with treatment, he is now cancer free! I hope the same for you), their family will be financially protected. I would read through your policy to make sure there is not anything funny in there, but in general, no... they cannot raise your rates. Good luck!

Melissa Levin, CFP® CA Insurance Lic #0C56086 714-547-8787

Melissa Levin is a LPL Registered Representative with, and securities offered through LPL Financial, Member FINRA www.finra.org /SIPC www.sipc.org

The opinions voiced in this material are for general information only and are not intended to provide advice or recommendations for any individuals. Due to industry regulations, the advisor may not post additional reply comments. If you would like to contact the author, please email her at Melissa.Levin@lpl.com. LPL Tracking #1-073730

Yes, it is very important that both spouses have life insurance coverage. Many times people overlook the fact that a stay at home mom is a very important job that if you put a dollar sign on it, you would be surprised at what a high salary it would be. To express my point further, how much would the following cost if you had to pay someone to do this for you:

• someone to go grocery shopping for you • childcare while you are at work • housekeeping • having meals prepared • errands run during the day • and much more

Now, you may say... well, I don't need to pay someone to do all of the above... but, imagine working a full time job. You could take your children to the grocery store with you, have them watch TV while you prepare meals and clean your house. They could sit in the car and run errands with you, etc. Get my point? If one of their parents just passed away, I feel the most important thing to do is spend quality time with your children when you come home from work and not have them do the job with you that the stay at home parent did beforehand. Is the working spouse's income enough to pay for someone to come in and do all of the above? If so, there may not be a need... but if spending an additional $2k - $5k (or more depending on your lifestyle) will hurt your cash flow, you will definitely need to look at life insurance for the stay at home parent.

Melissa Levin, CFP® CA Insurance Lic #0C56086 714-547-8787

Melissa Levin is a LPL Registered Representative with, and securities offered through LPL Financial, Member FINRA www.finra.org /SIPC www.sipc.org

LPL Tracking #1-073729. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individuals. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

While each situation is different, most of our firms clients are retired and have sufficient assets to last them the rest of their lives - not a situation where life insurance would normally be considered as "needed". However, there is a niche but significant opportunity here, and it applies to couples of all ages - regardless of other financial assets, whether they have children or not, or whether any traditional "need" exists.

The use of a Guaranteed Death Benefit, Level Premium Universal Life Insurance policy on each spouse in an amount between 10% to 25% of current net worth (higher if IRA assets comprise a higher percentage of net worth) is in order. Use a policy which has an accelerated benefit for Long Term Care events, and the "expense" of Long Term Care insurance is replaced with a known, identifiable rate of return at normal life expectancy. In this regard, the Death Benefit may be viewed as an additional "asset class" in the context of the financial portfolio that remains for a surviving spouse or legacy for children. The fact that the life insurance death benefit is income tax free makes it an even more attractive asset class. In larger estate situations, the insurance may be removed from the estate through the use of an Irrevocable Life Insurance Trust.

The additional reason for insurance on both spouses is that when the first death occurs, the surviving spouse may use the life insurance procceeds to effect a Roth Conversion of part or all IRA assets - with the tax bill being paid with discounted proceeds from the life insurance death benefit.

Hi Tayna,

The answer is yes. Everyone else has already done a good job answering your question, especially Bob speaking from personal experience. Even before I started my investment advisory business I sold life insurance for years. I always advised couples to put some insurance on the spouse that did not work outside the home. Notice I said did not WORK OUTSIDE the home. I have been married for almost 28 years and there is no way I could replace what my wife does for our family.Take some time and sit down and figure out roughly what your husband would have to pay someone to do all the things you do. Forget about family that will help. Sure they will help but you don't want to be a burden on anyone. Please for your childrens sake consider buying some term insurance. Buy a term long enough that gets you until your children are through college.

Maybe. Life insurance exists to fill a need: a need for protection. ( It is not an investment and any cash value build up should be a secondary consideration to the need for protection) You can do a simple analysis: how much income would each spouse need if the other was not around? Please consider that the income needed today will rise in REAL terms because of inflation. Then, back in to what the lump sum required is to generate that amount of income - using a realistic after tax return, (5% or 6%). If your current liquid assets don't equal that amount, you need to fill that gap with life insurance. In the case of a non-working spouse, as the other advisors have stated, the amount of income needed is often usually the amount needed for child care. With a income generating spouse, it is the amount needed to cover all living expenses. Each scenario is vastly different, hence a personalized analysis is helpful here. If you have any specific questions on this topic, feel free to reach me at 516-240-6161 or evan@completeadvisors.com Best of luck!

Dear Tanya - I would echo the advice of Bob and Eve. In developing a financial plan for a client, I consider expenses, not income, to determine how much life insurance coverage to purchase. Someone with no dependents may not need much, if any, life insurance. But if you have dependents, you need enough insurance to cover the direct and contingent costs of providing for them after you are gone.

Insurance for a non-working spouse (non-working as defined by the IRS) is designed to cover a contingent cost. If you were not around to run your household, your family would be faced with a new, significant expense to employ someone who could help your spouse with child care, cooking, cleaning, driving, etc. To get a rough idea of the amount of life insurance coverage you should purchase, estimate this contingent expense and multiply it times the number of years it would be incurred (18 less the age of your youngest child).

There are more complex models to develop finer estimates, but a quick and dirty approximation should be adequate for your purpose. Term life insurance is very cost-effective, so my advice is to err on the side of caution and buy a bit more coverage than you think you need. I hope this helps.

Tanya, great question. This is a situation that is often overlooked. I speak from experience as my mother passed during my teenage years (without insurance). My father had to assume both parenting roles and manage a career. I watched as he made career decisions that he may not have made if he didn’t have to be mom and dad. Insurance does not change the fact that the surviving spouse will play both roles, but it will provide a financial cushion. Hiring someone to cook meals (insert numerous other tasks) would be a great help to your surviving spouse and your children. The cost of purchasing term insurance would probably be relatively affordable (assuming no major health concerns). Life insurance is purchased to help those left behind. You hope you never use it, but if something were to happen to you, your family will benefit from having one less concern in this emotional period of their life.