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The Most Important Question About Life Insurance

| September 29, 2023

ASSESS LIFE INSURANCE NEEDS

The most important question when it comes to Life Insurance is simple: Is It Enough?

If your family relies on your income, it's critical to consider having enough life insurance to provide for them after you pass away. But too often, life insurance is an overlooked aspect of personal finances.

In fact, according to a 2023 study conducted by Life Happens and LIMRA, which closely follows life insurance trends, nearly 50 percent of Americans say that they have no life insurance coverage at all, even though 39% say they intend to obtain life insurance coverage within the next year.1

Contact Blake at 225-408-0665; blake.price@lpl.com

Role of Life Insurance

Realizing the role life insurance can play in your family's finances is an important first step. A critical second step is determining how much life insurance you may need.

One widely followed rule of thumb for estimating a person's insurance needs is based on income. One broad guide suggests a person may need a life insurance policy valued at five times their annual income. Others recommend up to ten times one's annual income. But again, ´╗┐´╗┐will that be enough? 

Famliy under umbrella

If you are looking for a more accurate estimate, consider completing a "DNA test." A DNA test, or Detailed Needs Analysis, takes into account a wide range of financial commitments to help better estimate insurance needs. A sound financial plan will include an evaluation of all of these needs. It seems complex, but the right advisor can help keep it simple. 

The first step is to add up needs and obligations.

Short-Term Needs

Which funds will need to be available for final expenses? These may include the costs of a funeral, final medical bills, and any outstanding debts, such as credit cards or personal loans. How much to make available for short-term needs will depend on your individual situation.

Long-Term Needs

How much will it cost to maintain your family's standard of living? How much is spent on necessities, like housing, food, and clothing? Also, consider factoring in expenses, such as travel and entertainment. Ask yourself, "what would it cost per year to maintain this current lifestyle?"

New Obligations

What additional expenses may arise in the future? What family considerations will need to be addressed, especially if there are young children? Will aging parents need some kind of support? How about college costs? Factoring in potential new obligations allows for a more accurate picture of ongoing financial needs.

Next, subtract all current assets available.

Liquid Assets

Any assets that can be redeemed quickly and for a predictable price are considered liquid. Generally, houses and cars are not considered liquid assets since time may be required to sell them. Also, remember that selling a home may adjust a family’s current standard of living.

Needs and obligations – minus liquid assets – can help you get a better idea of the amount of life insurance coverage you may need. While this exercise is a good start, a regular review with a financial advisor as part of an overall financial plan will make sure that your coverages are up to date as your life goes on.  Call us and let us help simplify the process. 



1. LIMRA.com, 2023

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2023 FMG Suite.