Do A DI Needs Analysis To Uncover Need For Life Or LTC Insurance
By
"How much life insurance do I need?" Its a question as old as the life insurance industry.
The question surfaces a lot in long term care insurance scenarios, too: "How much LTC do I need?"
For middle-income working-age people with family obligations, both questions may be best answered by analyzing the clients need for disability income insurance coverage.
DI replaces lost income that would normally pay for day-to-day living expenses. If you think about it, life and LTC insurance do essentially the same thing. So, why not talk with your life and LTC clients about personal income needs? It will help you approach those sales in a more self-interested way.
Lets first consider a life-needs approach. If the client agrees he or she would need "$XX" each month in the event of disability, the person should acknowledge that his or her survivors would need similar income protection in the event of his or her death.
[Note: This approach can also dilute the potential for certain objections--e.g. "I am not looking to make my spouse rich!"--since you are clearly talking about providing survivors with little more than food, clothing and shelter.]
The analysis of the monthly and/or annual household income need is simple. (See chart.) Multiply the Total Monthly Expenses by 12 Months to find the Annual Household Income Need.
If there are two wage earners in the household, the agent may want to review each wage earners need, reducing the Annual Household Income Need by the after-tax income from the "survivor." The calculation would go like this: Annual Income Need minus the Survivor After-tax Annual Income equals the Adjusted Need.
The next step is to determine how long the survivors should get a monthly income and how much money will be required to accomplish this goal. If income is to be provided for a specific period of time, (e.g., five years), the calculation is: Annual/Adjusted Need times the Number of Years equals the Survivor Lump Sum Need
If income is needed for an indefinite period of time, use a "capitalization of income" calculation: Annual/Adjusted Need/Assumed Rate of Return Percentage equals the Survivor Lump Sum Need.
