Life Insurance Needs Analysis

With Snap's Life Insurance Needs Analysis you will be able to keep on top of your client's income replacement, debt repayment, and estate planning needs. If you prefer to watch a training session on this topic, please see: (WEBINAR) ☂️Your complete guide to life insurance in Snap Projections (August 24, 2022).

1

Get Started

Select  Scenario Setup -> Insurance-> Life Needs Analysis.

Select Edit Inputs.

By default, there is one analysis per spouse, and you can include up to 4 analyses in total by clicking on the box with the "+" sign to the right. You can click anywhere in that box, not just by the "+" sign.

You can also delete extra analyses by scrolling to the bottom and clicking Delete.

2

Enter the Insured Person and Description

In the Description, you can choose the client or spouse from the dropdown box and add a description for the analysis.

The Insured Person is the person whose life needs to be insured. We are analyzing the needs if they pass away.

The Analysis Description field will be helpful when distinguishing between two different determinations of needs. The example below will be comparing two cases for John Snapper. One of them with 100% debt repayment and the other with no debt repayment.  Other examples could be including a need to pay education costs or not, or showing income replacement for a different number of years.

How many years do you want to show for the analysis?  This is the value that you enter for the Analysis Horizon. 

The Rate of Return on the Insurance Proceeds is the nominal rate of return.  Enter 0% if the proceeds will not be invested.

3

Enter Income Replacement

The Income Replacement section is the amount of life insurance required to replace the present value of all future income shortfalls. Income and spending are indexed at the inflation rate specified in your scenario under the Tax & Inflation page.  In this example, the inflation rate is the default of 2.1%. 

Since John is the insured person in both of these analyses, we will assume his wife Jane is the survivor.  She has an income of $40,000 per year which we have entered, and her estimated income after tax is automatically calculated for us based on John's province of residence and using only the personal amount for income tax credits.  Consider whether Jane will work full-time or part-time if John passes away, or perhaps not continue working. 

Next, enter Jane's spending needs assuming that John has passed away.  These are her spending needs right now, assuming that John dies this year. The analysis compares Jane's spending needs with her income after tax.  There is only insurance needed to replace income if her spending needs exceed her after-tax income.    The ability to update her income and her spending needs in the future is available once you have saved the initial analysis and moved on to the analysis details page.

What about retirement savings?  If Jane needs to continue saving for retirement, make sure to include her retirement savings within the Survivor Spending Needs field.

The Capital Depletion checkbox has been enabled here.  This means that the amount of insurance required will be calculated to leave a zero balance at the end of the replacement period.   An insurance lump sum value is calculated which will grow at a rate of return of 3.5% and be depleted after 40 years which is the Analysis Horizon in this example. 

When the Capital Depletion checkbox is disabled, the required amount of insurance equals the shortfall divided by the real rate of return.  The amount of insurance is calculated in order to cover the needs using investment returns only and the capital will never be depleted assuming that the rate of return on the insurance proceeds is achieved each year.  In other words, what would be the lump sum of insurance proceeds required to never deplete the principal, and for Jane to only spend the 3.5% growth of the investment each year?

Note: You have the option here to create additional analyses for other parties.  For example, if John currently supports his parents, you could create a needs analysis for them.  How much income would they require, and for how long?  This can be a separate need from Jane's needs.

4

Enter Debt & Other Expenses

In the Debt & Other Expenses section, you will specify the percentage of debt to be paid immediately after the insured passes away as well as the spousal debt repayment.

In Analysis #1,  Jane wants to have 100% of both her and John's debts paid off and Analysis #2 shows none of John's debt paid off. She wishes to include the children's education cost and specified amounts for funeral and other expenses.

5

Enter Available Resources

In the Available Resources section, there are Existing Life Insurance policies and other Assets. Snap will propagate all current policies that you have entered previously in the software for the existing insurance policies. You can then specify the percentage that will be used in each analysis. Also, the Capital and Real Assets from the projections are automatically displayed and a percentage can be applied to use these resources.

In this example, there are no existing insurance policies but there are Non-Registered Assets.  Jane wishes to use 100% of the Non-Registered Assets.

Once you have entered all the values, click Save and it will take you to the Insurance Needs Analysis summary page.

6

Insurance Needs Analysis Summary Page and Report

The summary page shows the Total Life Insurance Required before taking into account existing insurance policies and assets. It also shows the Extra Life Insurance Required after using Existing Life Insurance and a percentage of Non-Registered Assets. To update the analysis, you can click Edit Inputs at the top of the page. 

As shown in the above screenshot, you can also click  See Details, which will give you a year-by-year breakdown of the analysis where you can also make further adjustments.

The details table breaks down the Income Replacement needs, the insurance required to pay off Debt and Expenses, the Available Resources and the Extra Life Insurance Required each year.  You can see the changing insurance needs over time.  The survivor income and income replacement needs are shown to increase with inflation over time.  The amount of insurance required for Income Replacement and Debt and Expenses is shown to decrease over time as there are fewer years remaining to replace income and the debts and education needs have decreased over time.

You are able to edit any blue values on this page by clicking them. For example, you can edit the Survivor Income if Jane plans to stop working at age 55. 

This will increase the life insurance need.

To include the Insurance Needs Analyses in your report, click Client  Report in the navigation bar. The insurance needs analysis summaries will be displayed at the bottom of the report navigation pane on the left side of the Create Report page.