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 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 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 insurance 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.
This commentary was created by Aspire Planning Group and is for informational purposes only. The views expressed are based on current market conditions and are subject to change. The commentary does not take into account any investor’s particular investment objectives, strategies, tax status, or time horizon. There are no assurances that the techniques and strategies discussed are suitable for all investors or that the predicted results will occur. The commentary does not constitute investment advice, tax advice, or legal advice. All investments are subject to risk, and past performance is no guarantee of future results.
Aspire Planning Group, LLC is a d/b/a of HighPoint Advisor Group, LLC (HPAG), a registered investment advisor. For current HPAG information, please visit www.advisorinfo.sec.gov and search by CRD#163768.