From Go Fund Me to "I Funded We"...

If you’re plugged into any popular social media outlet you may often come across a shared post with a link to a Go Fund Me page due to the untimely passing of a loved one.?I use the word “untimely” because there can be only three things that are guaranteed in our lives today, (1) taxes, (2) tax-reform, and (3) death[1].?As morbid as it may seem it isn’t a matter of if it will happen but more so when will it happen for us.?The Go Fund Me strategy is offered or used for families and loved ones often (not always) who did not take the appropriate steps to plan for the risks of the unexpected.?During a time of loss, grieving and much emotion the last thing a family or loved ones wants to be thinking about is, “are we going to be okay financially?”.?One way that we as individuals, families, or parents can plan for the unexpected is by transferring the risk through the use of Term Life Insurance.

?What is Term Life Insurance –

Term life insurance is a type of insurance that guarantees payment of a stated death benefit if the covered person dies during a specified term[2].?This form of life insurance is traditionally less expensive than other forms of life insurance like permanent coverage and allows applicants to obtain greater amounts of coverage for a lower cost (typically).?The cost of the overall coverage is linked to a couple of factors: applicants attained age, applicants current health and medical history, term of coverage, amount of coverage and type of coverage (i.e., permanent vs term).?I like to use the analogy that term life insurance is similar to renting or leasing a home.?You pay your landlord your rent payment each month and it’s a pure expense.?At the end of your rental agreement term you end up with no where to live (unless you renew the agreement of course).?Many financial media heads tout term insurance over permanent for the simple fact that it’s traditionally less expensive, especially for younger healthier individuals.?

?How Do I Determine the Right Amount of Coverage –

There are three different formulas in which we like to use when advising our clients through the journey of identifying the right amount of life insurance coverage.?We understand that life insurance planning is unique to each client’s individualized circumstances and there isn’t a one size fits all.?With that being said we use the following formulas:

1.????Human Life Value (HLV)[3]: this formula takes into account the financial loss a family would incur if the insured person in the family were to pass away.?As an income earner we each have an economic value that we bring to our households.?The idea is that while we’re younger and further from retirement age there is a greater amount of risk exposure for potential lost income long-term for the family.?Actuarial use the individual’s annual gross income and multiplies it by age-banded multiplier.?This results in the individual’s HLV or the most life insurance coverage they’re eligible to own at that moment.?See table below: [4]

Using the table above let’s walk through the scenario of a young married couple with three children under the age of 6.?The husband is aged 32 and earns a gross income of $100,000 per year and the wife is aged 36 and earns an income of $75,000 per year.?The husband’s HLV is $3,000,000 [$100,000 x 30] and the wife’s human life value is $2,250,000.?In this scenario we would use term life insurance in order to keep total annual premium costs lower.?If we assume a return on investment or yield of 3% off the principal balance of the tax-free term death benefit proceeds, we can expect to generate $67,500 in interest income should the wife pass away and $90,000 should the husband pass away assuming they both have their full HLV in term life insurance coverage.

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2.????Income Replacement (IR): with this approach we discuss with the client on expected income-needs in the event one of the income earners within the household were to pass away.?In this scenario we take the assumed income replacement need amount and divide it by an expected return on investment or yield that we’d strive for to earn income off the principal death benefit amount.?Below is an example where the surviving spouse is expecting income replacement of $100,000.?One way in which we can achieve replacement of income is through the use of death benefit from a term life insurance policy.?In this scenario we use a conservative yield or return on investment of 3% off the principal balance of the tax-free term death benefit.?By taking the expected annual income replacement and dividing it by our expected yield we can back into the total term death benefit amount needed to achieve this goal.?The outcome is a death benefit need of $3,000,000 in order to generate $100,000 in interest income.

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3.????Needs-Based (NB): this approach tends to be most familiar and can lead to the insured having the absolute minimum amount of death benefit on their life.?Through this approach clients will list out all of their basic needs or objectives in the event a spouse were to pass away.?Most commonly we hear things like paying off the mortgage, any lingering debts like auto-loans, private student loans, credit cards, establishing a reserve fund for future college expenses, reserve fund for surviving spouses future retirement, and/or final expenses for burial arrangements.?

?In the below example the family has an expectation to pay off their remaining mortgage balance, auto loan, put money aside for future college expenses, help fund the surviving spouse’s retirement and provide for final funeral expenses. This is how we end up with a total death benefit amount of $735,000.

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But It’s Too Expensive –

Cost is purely subjective and dependent on the personal finances of the individual. It would be ill-advised or insensitive to claim that term life insurance is “cheap”.?By now we should be able to acknowledge that the life insurance is important in protecting the future success of your financial plan and goals.?What can most individuals expect to pay??Let’s revisit the example of the 32-year-old husband above with the human life value (HLV) of $3,000,000.?If he were to shop the desired coverage across various carriers for a 20-year term policy today and received the highest and beath health rating he could expect to pay somewhere in the ballpark of $82 t0 $150 per month.?The rates would adjust accordingly once he applies and receives his true health rating.?

?So What Did We Learn –

The biggest take away is that there is more than one way to determine the right amount of death benefit coverage an individual or family should own based on their personal circumstances.?It is our responsibility as society to be proactive in planning for the untimely guarantee(s) of the future in order to ensure that our loved ones are taken care of from a financial standpoint.?One way to be prepared is to consider obtaining term life insurance coverage that fits your need and available budget.?

?As a CERTIFIED FINANCIAL PLANNER? professional it is my responsibility to provide my clients with advice that is in their interest.?If you’re in the market for life insurance or looking to hire a financial advisor I am currently taking on new clients.?Feel free to contact me direct via email at [email protected] to schedule a complimentary review.?

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[1] Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

[2] All life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company.

?[3] The HLV Theory states that one should maintain life insurance equal to the present value of their expected future earnings. Life insurance companies place limits on life insurance available to consumers based upon this formula and have created age-based multiples of current income as a guideline. For example, a person in their 30s may be insured for around 30 times their annual income, 20 times for a person in their 40s and 10 times for people in their 50s. Age 60 and over about 1 times net worth.

[4] THE LIVING BALANCE SHEET? Software Version: 22.6.1.9 Copyright ? 2005-2022 The Guardian Life Insurance Company of America, New York, NY. All Rights Reserved. Patent Pending. Portions of this application have been licensed from eMoney Advisor, LLC. Copyright ? 2000-2022 eMoney Advisor, LLC. All Rights Reserved.

?All scenarios and names mentioned herein are purely fictional and have been created solely for educational purposes.?Any resemblance to existing situations, persons or fictional characters is coincidental.?The information presented should not be used as the basis for any specific investment advice.

?Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice.?Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary.?Therefore, the information should be relied upon only when coordinated with individual professional advice.

?This material is intended for general use. By providing this content Park Avenue Securities LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation, or to otherwise act in a fiduciary capacity.

?Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice.?Consult your tax, legal, or accounting professional regarding your individual situation.

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Financial Advisor and?Registered Representative of Park Avenue Securities LLC (PAS). OSJ:?6115 Park South Drive, Suite 200, Charlotte, NC 28210. Securities products and advisory services offered through PAS, member?FINRA, SIPC.?Financial Representative of The Guardian Life Insurance Company of America?(Guardian), New York, NY. Park Avenue Securities is a wholly owned subsidiary of Guardian. Consolidated Planning, Inc. is not an affiliate or subsidiary of PAS or Guardian. CA insurance license # 0M50974.?Guardian and PAS do not offer student loans to finance education nor do they offer legal to tax advice.?2022-143040 Exp. 9/24.

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[1] Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

[2] All life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company.

[3] The HLV Theory states that one should maintain life insurance equal to the present value of their expected future earnings. Life insurance companies place limits on life insurance available to consumers based upon this formula and have created age-based multiples of current income as a guideline. For example, a person in their 30s may be insured for around 30 times their annual income, 20 times for a person in their 40s and 10 times for people in their 50s. Age 60 and over about 1 times net worth.

[4] THE LIVING BALANCE SHEET? Software Version: 22.6.1.9 Copyright ? 2005-2022 The Guardian Life Insurance Company of America, New York, NY. All Rights Reserved. Patent Pending. Portions of this application have been licensed from eMoney Advisor, LLC. Copyright ? 2000-2022 eMoney Advisor, LLC. All Rights Reserved.