Life Insurance, Part Deux: NEEDS & WANTS

Last week we introduced the topic of life insurance conceptually and debunked the myths surrounding life insurance agents and fashion. This week, I want to give you some tangible tips on how you can understand the role of life insurance in your life. We’ll start with an excerpt from The Financial Crossroads:

Like all of financial planning, there is both a science and an art to life insurance planning. While there is enough subjectivity in the thought processes surrounding life insurance to create an exception for nearly every rule, we will begin by separating the various reasons to purchase life insurance into concrete NEEDS and WANTS. Life insurance needs are those things that would allow the surviving family membe

rs to continue on, unencumbered by the financial loss of the deceased. If no one else is reliant on your financial wherewithal, you have no life insurance need. Life insurance wants, then, are anything else that would further improve your situation beyond what it is today. Let’s look at the primary examples.

Life Insurance Needs:

• Final Expenses
• Payment of Debts and Mortgages
• Education for Children
• Needed Income Replacement

Life Insurance Wants:

• Pre-insurance
• Build Cash Value
• Estate Creation
• Wealth Replacement
• Charitable Bequests

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Determining exactly HOW MUCH life insurance is required to satisfy your needs and wants is quite simply too much information to pack into a blog post (it’s even a challenge to do so in a chapter, but we give it our best shot in Chapter Seven of The Financial Crossroads entitled, “Life Insurance, Part II: How?” and offer free online spreadsheets and exercises to help you determine your life insurance needs via the Tools & Applications tab on www.TheFinancialCrossroads.com) but I do have the space to sum up for you WHAT TYPE of life insurance you can consider in satisfying your needs and wants…

In the vast majority of cases, “Life Insurance Needs” are best covered with term life insurance. You’ll note that most of the needs listed are temporary, and as we mentioned last week, IF you have successfully reached financial independence—retired or not—you don’t have any life insurance needs. “Life Insurance Wants,” conversely, with the exception of Pre-insurance, almost always require the use of permanent life insurance (whole life, universal life or variable life).

I certainly recognize that the shortfall to every rule is its exceptions, and I look forward to addressing them—and any additional thoughts or questions you might have surrounding life insurance—on our blog, so please join me there!