Life Insurance Needs Analysis

Transcription

1 Life Insurance Needs Analysis The MoneyGuidePro (MGP) Life Insurance Needs Analysis, is available if either the client or spouse is currently employed. We make default assumptions for key inputs to the analysis. Because we supply default values, there may be an insurance estimate displayed the first time you see this page. You should review the input values, and adjust them as necessary to better reflect your clients specific situation. The Life Insurance Needs Analysis always assumes that the person (client or spouse) dies today. The graph at the top of the page shows the Total Life Insurance Needed, the Existing Life Insurance, and the Additional Insurance Needed. The graph on the left side displays the insurance estimate for the client, and the graph on the right side displays the estimate for the spouse, if applicable. To see a year by year cash flow tracking on the insurance analysis, click the Details link located below the graph for the client you want to review. You have the ability to see this information both with the additional insurance and without the additional insurance. The input fields on this page are different based upon the clients marital status and whether or not they have dependents. The three different scenarios are: (1) Married Clients with or without Dependents, (2) Single/Divorced/Widowed Client with Dependents, and (3) Single/Divorced/Widowed Client without Dependents. The following sections describe the input fields and assumptions for each of the three different client scenarios. Refine Needs Analysis for Married Clients Calculation of Insurance Need To satisfy the Insurance Needs specified on this page, the program will use: Clients existing life insurance Investment Assets that are included in this Plan Other Income entered and/or selected on this page Funds from the sale Personal or Business Assets entered on this page Surviving spouse s income (from employment and other sources) Social Security Survivor Benefits for the dependents Social Security Survivor Benefits for the spouse, if eligible based on his/her employment income. Select the Version of the Plan to Use You can select one of six Plan scenarios to use for the Needs Analysis. Use the drop down to select one of the What If scenarios or the Current Plan (click go to save your selection), and the analysis will be calculated using that scenario (i.e. the goal amounts, rates of return, and inflation from that scenario). The default is the What if 1 scenario. When you leave the Life Insurance page, whichever scenario you selected will remain PIEtech, Inc. All Rights Reserved Life Insurance Needs Analysis Page 1

2 Existing Life Insurance If you entered life insurance policies on the Insurance Policies or Other Assets pages, the total amount of all death benefits will be displayed as the Policy Amount. MGP includes the death benefit amount from all policies that have the Spouse, the Estate, a Child, a Grandchild, or an Other Dependent as the beneficiary. (This default will not include the Death Benefits from life insurance policies where the designated beneficiary is an Other Beneficiary, a Charity, or a Trust.) If you update the death benefit on any life insurance policy, the Policy Amount on this page will automatically be updated. You can use either the Policy Amount (the sum of the death benefits from insurance policies entered on the Insurance Policies and Other Assets pages) or input an amount in the Entered Amount field. (After entering your own amount, click the Calculate button). This selection determines the Existing Life Insurance amount used in the graph at the top of the page. Also, you have the option of entering an Additional Death Benefit amount (e.g., a lump sum payout from a defined benefit pension) in this section. The Additional Death Benefit is not included in the Existing Life Insurance (in the graph), but is used to reduce the Additional Insurance Needed. Liabilities and Final Expense This section consists of four input fields: Liabilities, Final Expenses, Bequests, and Other Payments. If you entered debts on the Liabilities page, the total amount will be displayed as the Liability Amount. (If you update any debts on the Liabilities page, the Liability Amount on this page will automatically be updated.) You can either use the Liability Amount (the sum of the debts entered on the Liabilities page) or input an amount in the Entered Amount field. (After entering your own amount, click the Calculate button.) The default for Final Expenses is $10,000, the average cost of a funeral. Bequests and Other Payments default to zero. You can change these amounts by entering new values in the fields, then clicking the Calculate button. Living Expenses for Survivors Living expenses are broken into two time periods, First Living Expense and Second Living Expense, each with its own expense amount. We provide initial defaults for the First Living Expense period, and leave the Second Living Expense period blank. The default amount for the First Living Expense period is our estimate of living expense needs, based on the clients current income. We estimate this amount by combining the client s incomes subtracting FICA and Medicare Taxes, subtracting Federal and State Taxes, and subtracting a 14 % assumed savings rate. The age entered in this section is the age of the survivor to end the First Living Expense, which is defaulted to the survivor s Planning Age. The default is meant to mimic one expense period from know until the end of plan. For the Second Living Expense The living expense field for the retirement period is never defaulted. This is because we want you to truly consider what expenses to cover for purposes of income replacement this far into the future. To add a second 2015 PIEtech, Inc. All Rights Reserved Life Insurance Needs Analysis Page 2

3 living expense, a younger age (i.e. retirement) should be entered as the end age of the first living expense and a later date should be entered for the age used to end the second living expense. There is no 'Second Living Expense' for a scenario in which the planning age of the survivor occurs this year, as it is impossible to have two living expenses in one year. If the clients mortgage is included in the Liabilities and Final Expenses (either because you included it on the Liabilities page or entered it on this page), you might want to decrease the Living Expense amount by the annual mortgage payment. Otherwise, you will be double counting the mortgage, by assuming it will be paid off, but still including it in the living expense amounts. The living expenses for survivors (both the amount and the time period) usually have the greatest impact on the amount of life insurance needed. You can try different expense amounts and varying time periods to see how the life insurance needs change. We assume that the surviving spouse s income (from employment and any other sources) and Social Security Survivor Benefits for dependents would always be used to help cover their Living Expenses. Therefore, when you indicate on this page that you do not want to cover Living Expenses (by entering a zero in the Living Expense fields), the Program will not use the surviving spouse s income(s) or any Social Security Survivor Benefits to satisfy the insurance needs. Financial Goals All the Financial Goals (with the exception of Retirement Living Expenses) that were entered for this scenario are listed in this section. (Retirement is not listed because expenses are covered in the section above, living expenses for survivors.) The default is to include all goals, which means that the Insurance Need includes funding each of these goals. You can choose to include (or not include) each goal, if the client dies, or if the spouse dies. If you don t want to include a specific goal, click on the Include box to remove the check mark. Sell Other Assets We list the clients current Personal and Business Assets that were entered on the Other Assets page. This section is broken into two sections. The first is for Other Assets not scheduled to be sold to fund goals in the plan. If any of these assets would be sold, or if any asset not entered in this Plan would be sold upon the death of either spouse, enter the total value of the assets that would be sold in this field. This amount will be used to fund the Financial Goals and the survivors living expenses. The second section lists assets originally marked to be sold to fund goals. If any of these assets should be excluded from this analysis, uncheck the asset here. Returning to Employment This section will be displayed if either the client or spouse is not currently employed. You can indicate whether the person not currently employed would go to work if the other person dies prematurely. If this option is selected, the employment income entered here would first be applied to the living expense needs for survivors in the years of employment, then would be used to fund the goals that are included in this analysis PIEtech, Inc. All Rights Reserved Life Insurance Needs Analysis Page 3

4 Stock Options and Restricted Stock If you entered Stock Option and/or Restricted Stock Plans, they are listed in this section. The default is to include the Plan amounts, which could reduce the Insurance Needed. You can choose to include (or not include) each Plan, if the client dies. If you don t want to include a Stock Option or Restricted Stock Plan, click on the box beside the Plan name to remove the checkmark. Other Income This section has two parts Other Income from Now Until Retirement and Other Income - After Retirement. Other Income From Now Until Retirement defaults to the amounts from the Other Income fields of the Start/Personal page. You can change these amounts by entering a new value in the field, then clicking the Calculate button. Other Income - After Retirement lists all the Retirement Income sources (except Social Security) from the Retirement Income page. The default is to include all these income sources. You can choose to include (or not include) each income source, if the client dies, or if the spouse dies. If you don t want to include a specific income source, click on the Include box to remove the check mark. Tax Rate For all clients, the life insurance needs calculations assume an average (rather than a marginal rate) federal tax rate of 18%. The default for the state (and local, if applicable) tax rate is the clients marginal rate. We know that we are slightly overstating the state taxes (by using the marginal rate), but want to be conservative. You do have the option to enter your own average tax rates for one or two time periods. Rate of Return The default rate of return is the return for the scenario you selected. You may change this rate, for one or two time periods, by entering the rate(s) you want, then clicking the Calculate button. Joint Additions Accounts that have joint additions are listed in this section. There may be joint additions in your Plan that you do not want to continue making after the death of the client or spouse. If you do not want to include these additions, click on the Include box to remove the check mark. Dependents We display the names of the Children, Grandchildren, and Other Dependents entered as participants on the Start/Personal page. Any dependent with a relationship other than Unknown or Other Relationship will be considered eligible for Social Security Survivor benefits. If any of these dependents would be ineligible for Social Security Survivor Benefits, select Unknown or Other Relationship from the Relationship drop-down box, then click the Calculate button. If the clients have dependents that would be eligible for SS Survivor Benefits and they are not listed in this section, go back to the Start/Personal page and enter their names and birth dates. The birth year is used to calculate when SS Survivor Benefits end. Benefits for each dependent end when he/she is age 18. If applicable, benefits for the surviving spouse end when the youngest dependent is age 16. For each person designated on the Start/Personal 2015 PIEtech, Inc. All Rights Reserved Life Insurance Needs Analysis Page 4

5 page as a Child, we default the relationship to Both are Parents. For each person designated on the Start/Personal page as a Grandchild or Other Dependent, we default the relationship to Other Relationship. Refine Needs Analysis for Single/Divorced/Widowed Client with Dependents Calculation of Insurance Need To satisfy the Insurance Needs specified on this page, the program will use: Clients existing life insurance Investment Assets that are included in this Plan Other Income entered and/or selected on this page Funds from the sale of Personal or Business Assets entered on this page Social Security Survivor Benefits for the dependents Select the Version of the Plan to Use You can select one of six Plan scenarios to use for the Needs Analysis. Use the dropdown to select one of the What If scenarios or the Current Plan (click go to save your selection), and the analysis will be calculated using that scenario (i.e. the goal amounts, rates of return, and inflation from that scenario). The default is the What if 1 scenario. When you leave the Life Insurance page, whichever scenario you selected will remain. Existing Life Insurance If you entered life insurance policies on the Insurance Policies or Other Assets pages, the total amount of death benefits will be displayed as the Policy Amount. MGP includes the death benefit amount from all policies that have the Estate, a Child, a Grandchild, or an Other Dependent as the beneficiary. (This default will not include the Death Benefits from life insurance policies where the designated beneficiary is an Other Beneficiary, a Charity, or a Trust). If you update the death benefit on any life insurance policy, the Policy Amount on this page will automatically be updated. You can use either the Policy Amount (the sum of the death benefits from insurance policies entered on the Insurance Policies or Other Assets pages) or input an amount in the Entered Amount field. (After entering your own amount, click the Calculate button.) This selection determines the Existing Life Insurance amount used in the graph at the top of the page. Also, you have the option of entering an Additional Death Benefit amount (e.g., a lump sum payout from a defined benefit pension) in this section. This Additional Death Benefit is not included in the Existing Life Insurance (in the graph), but is used to reduce the Additional Insurance Needed. Liabilities and Final Expense This section consists of four input fields: Liabilities, Final Expenses, Bequests, and Other Payments. If you entered debts on the Liabilities page, the total amount will be displayed as the Liability Amount. (If you update any debts on the Liabilities page, the Liability Amount on this page will automatically be updated.) You can 2015 PIEtech, Inc. All Rights Reserved Life Insurance Needs Analysis Page 5

6 either use the Liability Amount (the sum of the debts entered on the Liabilities page) or input an amount in the Entered Amount field. (After entering your own amount, click the Calculate button.) The default for Final Expenses is $10,000, the average cost of a funeral. Bequests and Other Payments default to zero. You can change these amounts by entering new values in the fields, then clicking the Calculate button. Living Expenses for Survivors Living expenses are broken into two time periods, First Living Expense and Second Living Expense, each with its own expense amount. The time span for each period is based upon the age of the youngest dependent. We provide initial defaults for the First Living Expense period, and leave the Second Living Expense period blank. The default living expense for First Living Expense amount is our estimate of the family s living expense need, based upon the client s current income. We estimate this amount by combining the client s incomes subtracting FICA and Medicare Taxes, subtracting Federal and State Taxes, and subtracting a 14 % assumed savings rate. We default the age for the end of the first period to 22 (This means when the youngest dependent is age 22.) You can change the amounts and the ages to fit your client s situation. For example, you might have one amount until the youngest child is age 18 and a different amount until he/she is age 22. If the client s mortgage is included in the Amounts To Be Paid at Death Debts (either because you included it on the Liabilities page or entered it on this page), you might want to decrease the Living Expense amount by the mortgage payment amount. Otherwise, you will be double counting the mortgage, by assuming it will be paid off, but still including it in the living expense amounts. The living expense for survivors (both the amount and the time period) usually have the greatest impact on the amount of life insurance needed. You can try different expense amounts and varying time periods to see how the life insurance needs change We assume that the Social Security Survivor Benefits for dependents would always be used to help cover their Living Expenses. Therefore, when you indicate on this page that you do not want to cover Living Expenses (by entering a zero in the Living Expense fields), the Program will not use the Social Security Survivor Benefits to satisfy the insurance needs. Sell Other Assets We list the client s current Personal and Business Assets that were entered on the Other Assets page. This section is broken into two sections. The first is for Other Assets not scheduled to be sold to fund goals in the plan. If any of these assets would be sold, or if any asset not entered in this Plan would be sold upon the death of the client, enter the value of the assets that would be sold in this field. This amount will be used to fund the Financial Goals and the survivors living expenses PIEtech, Inc. All Rights Reserved Life Insurance Needs Analysis Page 6

7 Stock Options and Restricted Stock If you entered Stock Option and/or Restricted Stock Plans, they are listed in this section. The default is to include the Plan amounts, which could reduce the Insurance Needed. You can choose to include (or not include) each Plan, if the client dies. If you don t want to include a Stock Option or Restricted Stock Plan, click on the box beside the Plan name to remove the checkmark. Other Income This section allows you to include Other Income that would be available to the survivors. This field defaults to the amount from the Other Income field of the Start/Personal page. You can change this amount by entering a new value in the field, then clicking the calculate button. Tax Rate For all clients, the life insurance needs calculations assume an average federal tax rate of 18% (rather than a marginal rate). The default for the state (and local, if applicable) tax rate is the client s marginal rate. We know that we are slightly overstating the state taxes (by using the marginal rate), but want to be conservative. You have the option to enter your own average tax rates for one or two time periods. Rate of Return The default rate of return is the return for the scenario you selected. You may change this rate, for one or two time periods, by entering the rate(s) you want, then clicking the Calculate button. Dependents We display the names of the Children, Grandchildren, and Other Dependents entered as participants on the Start/Personal page. Any dependent with a relationship other than Unknown or Other Relationship will be considered eligible for Social Security Survivor benefits. If any of these dependents would be ineligible for Social Security Survivor Benefits, select Unknown or Other Relationship from the Relationship drop-down box, then click the Calculate button. If the clients have dependents that would be eligible for SS Survivor Benefits and they are not listed in this section, go back to the Start/Personal page and enter their names and birth dates. The birth year is used to calculate when SS Survivor Benefits end. Benefits for each dependent end when he/she is age 18. If applicable, benefits for the surviving spouse end when the youngest dependent is age 16. For each person designated on the Start/Personal page as a Child, we default the relationship to Both are Parents. For each person designated on the Start/Personal page as a Grandchild or Other Dependent, we default the relationship to Other Relationship PIEtech, Inc. All Rights Reserved Life Insurance Needs Analysis Page 7

8 Refine Needs Analysis for Single/Divorced/Widowed Client without Dependents Calculation of Insurance Need To satisfy the Insurance Needs specified on this page, the program will use: Clients existing life insurance Investment Assets that are included in this Plan Funds from the sale of Personal or Business Assets entered on this page Select the Version of the Plan to Use You can select one of six Plan scenarios to use for the Needs Analysis. Use the drop down to select one of the What If scenarios or the Current Plan (click go to save your selection), and the analysis will be calculated using that scenario (i.e. the goal amounts, rates of return, and inflation from that scenario). The default is the What if 1 scenario. When you leave the Life Insurance page, whichever scenario you selected will remain. Existing Life Insurance If you entered life insurance policies on the Insurance Policies or Other Assets pages, the total amount of death benefits will be displayed as the Policy Amount. MGP includes the death benefit amount from all policies that have the Estate as the beneficiary. (This default will not include the Death Benefits from the life insurance policies where the designated beneficiary is a Beneficiary/Donee, a Charity, or a Trust.) If you update the death benefit on any life insurance policy, the Policy Amount on this page will automatically be updated. You can use either the Policy Amount (the sum of the death benefits from insurance policies entered on the Insurance Policies or Other Assets pages) or input an amount in the Entered Amount field. (After entering your own amount, click on the Calculate button.) This selection determines the Existing Life Insurance amount that is used in the graph at the top of the page. Also, you have the option of entering Additional Death Benefit amount (e.g., a lump sum payout from a defined benefit pension) in this section. This Additional Death Benefit is not included in the Existing Life Insurance (in the graph), but is used to reduce the Additional Insurance Needed. Liabilities and Final Expense This section consists of four input fields: Liabilities, Final Expenses, Bequests, and Other Payments. If you entered debts on the Liabilities page, the total amount will be displayed as the Liability Amount. (If you update any debts on the Liabilities page, the Liability Amount on this page will automatically be updated.) You can either use the Liability Amount (the sum of the debts entered on the Liabilities page) or input an amount in the Entered Amount field. (After entering your own amount, click the Calculate button.) The default for Final Expenses is $10,000, the average cost of a funeral. Bequests and Other Payments default to zero. You can change these amounts by entering new values in the fields, then clicking the Calculate button PIEtech, Inc. All Rights Reserved Life Insurance Needs Analysis Page 8

9 Sell Other Assets We list the client s current Personal and Business Assets that were entered on the Other Assets page. If any of these assets would be sold, or if any asset not entered in this Plan would be sold upon death of the client, enter the total value of the asset that would be sold in this field. This amount will be used to reduce the Insurance Needed. Stock Options and Restricted Stock If you entered Stock Option Plans, they are listed in this section. The default is to include the Stock Option amounts, which could reduce the Insurance Needed. You can choose to include (or not include) each Stock Option Plan, if the client dies. If you don t want to include a Stock Option or Restricted Stock Plan, click on the box beside the Plan name to remove the checkmark PIEtech, Inc. All Rights Reserved Life Insurance Needs Analysis Page 9