Needs Analysis & Beneficiary Designations

Needs analysis determines how much life insurance a client requires.

Human Life Value (HLV) approach: Estimates the present value of the insured's future earnings that would be lost to dependants. Formula considers: current income, years to retirement, personal consumption rate, and discount rate.

• Needs-based approach (most common):
• Calculates specific financial needs:
• Income replacement — how many years × how much income
• Debt coverage — mortgage, car loans, credit cards
• Final expenses — funeral, estate costs, taxes
• Education funding — children's post-secondary costs
• Emergency fund
• Then subtracts existing assets and coverage to arrive at the insurance gap.

Revocable beneficiary — the policy owner can change the beneficiary at any time without the beneficiary's consent. Most designations are revocable.

Irrevocable beneficiary — the beneficiary has legal rights in the policy. The policy owner cannot change the beneficiary, surrender the policy, take a policy loan, or assign the policy without the irrevocable beneficiary's written consent.

Preferred beneficiaries (spouse, child, grandchild, parent) — when designated, the death benefit may be protected from the policy owner's creditors.

Naming the estate as beneficiary — the death benefit goes through probate, is subject to creditor claims, and becomes public record. Generally not recommended.

Minor children as beneficiaries — if a minor is named and the insured dies, a court must appoint a guardian to manage the funds until the child reaches the age of majority. A trust arrangement is preferred.