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.