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SIMPLE NEEDS ANALYSIS
To determine the amount of life insurance you should own is
considered by many to be one of the most difficult things to do. Guess what? It is also
very difficult for many insurance agents to determine how much life insurance he or she
should recommend.
It’s not unusual and it is understandable that many
people are very reluctant to discuss in detail with anyone how much they earn, how much
they spend on their mortgage, cars, food, utilities, etc. Many insurance agents without
this information can not give you a qualified recommendation of how much life insurance
you should own.
So the agent uses a rule of thumb of 5 to 7 times your
earnings as the amount of life insurance you should own. Or you ask him to quote a
specific amount of insurance such as $100,000. Or the agent asks how much you can pay each
month. It is like a dance except the agent is dancing to rock and roll and you are doing
the waltz. With these methods, you will probably not end up with the exact amount of life
insurance you need.
How can you know how much life insurance you need and not
reveal your earnings, savings and expenses to a stranger? By doing your own simple needs
analysis. It sounds fancy, but it is very easy to do.
Use your checkbook and add up your normal monthly expenses
such as your mortgage payment; installment debt such as car, boat, credit cards, and other
loan payments; money spent on food, clothing and utilities; school tuition, support
payments, other forms of insurance premiums, etc. Now multiply those monthly expenses by
12 to see how much money is needed each year.
Take this annual expense total times 3. Add $25,000 per
child for educational purposes. Add the amount owed on your mortgage. Add $10,000 for
burial costs.
Subtract from this total the amount of life insurance you
currently own. If you have children under age 16, subtract 30% of your annual income from
this total also. (With children under age 16, your family will receive social security
survivor benefits.)
The end result is the minimum amount of life insurance you
need to purchase. This simple needs analysis will provide sufficient monies for your
family to readjust not only to your death but the loss of income. A special note for
working mothers: you should perform a simple needs analysis based on the same criteria.
Your unexpected death will alter the family income and these needs should be met.
Take a few minutes to perform your own simple needs
analysis to find out the minimum amount of additional life insurance you should own. This
way you and your agent will be dancing the same dance to the same tune. Call our
office for a copy of the simple needs analysis form or your favorite PRCUA
agent.
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