In my 30+ years in the life insurance industry, there have been only two main questions for the individual about life insurance: 1) How much do I need? 2) What kind is the best for me and my circumstances?
The first question is often the easy part #1 above-How Much?- Debts, mortgage, college cost for a younger family, income replacement, inheritance, bequests, charitable donations and, until recently, to pay estate taxes. (However, with recent tax law changes, the Middle Class Boomer has been greatly removed from this need except in the case of a business owner with a family net worth more than $10 Million. There is now a need to reconsider life insurance held in trust for that purpose but no longer be needed).
So then except for a simple “present value” calculation to mathematically calculate a lump sum earning an assumed rate of return for an assumed number of years for the amount needed for the income replacement, the amount of coverage needed is pretty easy Add up all the debts, and the mortgage, the cost of college anticipated to pay, and the amount of capital needed to replace an income and you have the face amount of coverage. Subtract from this any other existing assets that could be used to pay for these expenses and Voila! You have a meaningful amount of insurance coverage.
Next, you must decide the length of time needed to carry the plan. Will the mortgage coverage no longer be needed in 15 years? or will you still carry another mortgage at another home? Will your assets assure a comfortable life style forever? Will the kids get a scholarship? or once they have graduated, will that coverage still be needed?
The answers to these questions helps to clarify te answer to #2 above What kind? And this is where sales people and the Boomer can really get off the same page. More on this in the next post.
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