Professional Insurance Agents, Association of Independent Agents
Protect Your Future With Financial Planning
People don't plan to fail, and they fail to plan!
Many of our valued customers need assistance in planning their future and the safety of their families. We are here to assist with programs that protect their most valuable asset, their ability to earn an income!
Our various insurance programs help protect your family and assets whether you live too long, die too young, or become disabled.
Your ability to earn an income is what pays for your residence, buys your car, and provides for your family.
Our retirement programs, including IRA's, Annuities, 401Ks, pension plans, and permanent life insurance, help make sure you are financially safe if you live too long.
Our life insurance programs protect your family from financial ruin should you die too young.
Our disability income policies protect you and your family from hardship should you become disabled.
Financial Needs Analysis
Financial Needs Analysis can help you determine how best to plan for you and your family's future.
Certainly, we must insure our home and the liability it entails, our auto(s) at least for the liability that comes with owning them, and our family for medical needs as these exposures could wipe out our income if something significant happens, an accident or illness. We recommend high limits to cover these liabilities.
Secondly, we need to determine your value in providing income and your needs to maintain your desired standard of living for you and your family.
Life Insurance Planning
Many financial experts have recommended a factor of 8 to 10 times your annual income for determining your life insurance needs, but we feel that is too simplistic for most individuals.
The following is a more direct effort to determine one's life insurance needs when protecting their family.
We start by reviewing debts that need to be paid off so our family doesn't have to endure hardship such as paying final expenses, the mortgage or the auto loan, or liquidating those assets. Then we look to the upcoming family needs, including covering the cost of education or emergency expenses. Then we need to determine if there is a need for replacing your lost income to keep up a standard of living.
An example:
| Debts | |
|---|---|
| Mortgage Balance | $185,000 |
| Loan | 12,000 |
| Credit Cards | 5,500 |
| Unpaid Taxes | 2,500 |
| Other debts and final expenses | 15,000 |
| Total Current Obligations | 220,000 |
| Future Expenses | |
| Education Expenses (2 children at $40K each?) | 80,000 |
| Emergency Fund | 20,000 |
| Total Future Obligations | 100,000 |
| Income Replacement | 600,000 |
(Calculating this item is very difficult as our needs are different. In this case, we assumed a need to replace income lost for an indefinite period for the survivor. We estimated that need at $2,000.00 per month and an interest rate of 4%. In this case is would take a lump sum of $600,000 to generate $24,000 annually at 4%. 24000\.04=600000)
| Total Life Insurance Need | $ 920,000 |
|---|
This is the amount calculated to meet this family's financial needs in the event of death. Many financial planners estimate an income replacement factor of 7 times your current annual income after paying all debts.
Disability Income Planning
Unfortunately, a disability lasting for more than 180 days is eight times more likely than death at age 30 and 5 times more likely at age 50.
The only way to protect your standard of living is to purchase disability income insurance.
Typically the full purchase option is about 70% of your current income as benefits are typically not taxable, and the insurance company does not want you to be in a position of making more money on disability than you could make working. But you must decide what amount of coverage you need and for what time. These options vary based on your occupation and income. Most financial planners recommend replacing at least 50% and up to 70% of your monthly income with DI coverage for as long a benefit period available. You can also select a waiting period, usually 60, 90, or 180 days, as a waiting period before any benefit payments. Of course, premiums vary based on these decisions.
We have a plan to protect ourselves and our families if we die too young or become disabled.
Retirement Planning
Our next plan makes sure we have the cash and assets to maintain our standard of living even if we live too long.
The plan should entail the number required to generate the income necessary to maintain the standard you choose. Again, we look at a desired monthly income to determine that number, so if we need $4000 per month after retirement and we believe we can earn a reasonable return of 4%, we need an annuity of $1,200,000. Of course, there might be some other sources of income such as social security to assist with your retirement needs which you may want to include in your planning, but we must plan to take care of ourselves as there are no other guarantees in life.
We recommend tax-deductible means of saving such as IRAs, 401Ks, pensions, and those related programs. Life insurance is one of the following best accumulation programs as interest accumulations are at least tax-deferred. Certainly, capital gains at least avoid taxes until the time of disposition.
Early efforts to begin these savings greatly affects the results as indicated below. In order to accumulate $500,000 at 4% interest at age 65, you must set aside the listed monthly investment starting at that respective age.
| Age | Contribution |
|---|---|
| 25 | $200 |
| 30 | 300 |
| 35 | 500 |
| 40 | 800 |
| 45 | 1200 |
| 50 | 1800 |
| 55 | 3000 |
| 60 | 6000 |
As we can see, early contributions are vital to eliminating the need for possibly unachievable contributions in our later years.
Long Term Care Planning
We also need to review for the potential of needing assistance in a long-term care facility on in-home health care. Unfortunately, government benefits are only available if you meet specific financial characteristics, and most of us will need to use up our assets to qualify for those benefits. An excellent long-term care policy can help protect your assets from being diverted to paying for your care in or out of a nursing home. Again early planning is vital as the costs of these plans dramatically increase with age. We begin by determining a benefit we might need for a period that could be encountered.
Today, the cost of care facilities runs from just over $100 per day to upwards of $300 per day in some of the nicer facilities. That's an average of $73000 per year which can ruin a good retirement plan in just a few years.
The example below indicates the costs at various ages and benefit periods for a $200 per day benefits with a 90 day waiting period.
| Age | 2 year | 5 year | Lifetime |
|---|---|---|---|
| 45 | 600.00 | 900.00 | 1200.00 |
| 50 | 1200.00 | 1500.00 | 1800.00 |
| 55 | 1600.00 | 2500.00 | 3600.00 |
| 60 | 2400.00 | 3600.00 | 4800.00 |
| 65 | 3000.00 | 4200.00 | 6000.00 |
Again, early planning can help keep the costs down and benefits up.
Need more information? Call us at 480-423-7444 to speak with one of our experts.