If your clients left $1 million to their family in the
form of a life insurance policy’s death benefit, would it be enough? You may be
surprised at the answer.
A Quick Case Study
Tom and Susan are a married couple with:
·
A $200,000 mortgage
·
Annual incomes of $60,000 each
·
Two children, ages 2 and 4
In the event Tom or Susan should pass away, they want:
·
To provide for their children’s
education
·
Their family to be able to pay off all
expenses and debt
·
Their family’s standard of living to
remain the same
·
The surviving spouse to retire
comfortably
Upon the passing of one spouse, the other spouse receives
the $1 million benefit. Subtract from that the mortgage, college costs of
$95,0001 and funeral and other final expenses
of $5,000, leaving a lump sum of $700,000. A hypothetical return rate of 6%
would create an annual income stream of $42,000. That amount replaces only 70% of the spouse’s missing income
($60,000) with no adjustment for inflation.
If Tom and Susan would like to maintain the annual pre-tax income of
$60,000 (and assuming a 3% inflation rate and an annual pre-tax investment rate
of 6%), the lump sum will last only 14 years.
1 Based upon both
children attending school with current tuition of $20,000 a year, taking into
account 4% inflation and 8% return on a lump sum of money for 16 and 14 years,
respectively.
In the case of Tom and Susan, a
surviving spouse would only be able to maintain the family’s current standard
of living for 14 years. What are your clients’ needs, and do they have the
appropriate coverage in place?
This case study can serve as a
valuable illustration and encourage a dialogue between you and your clients
regarding the importance of proper life insurance coverage.
© Carmen Coleman, President and CEO
Lifetime Financial Group, LLC
30 W. Broad Street, Suite 300
30 W. Broad Street, Suite 300
Rochester, NY 14614
(585)325-2525
Tracking# 716056
Exp. 3/13
