Life Insurance Needs Analysis

With Snap's Life Insurance Needs Analysis, you can keep on top of your client's income replacement, debt repayment, and estate planning needs.

On the Planning page, select Needs Analysis and then Life Insurance.

If your Planning page has a lower resolution, or your window is smaller, the buttons will be displayed as icons. Click the button with the Needs Analysis symbol in the same location.

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.

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In the General section, 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 compare two cases for John Snapper. One with 100% debt repayment and the other with no debt repayment. Other examples could include a need to pay education costs or not, or showing Income Replacement for a different number of years.
• The Analysis Horizon is the number of years to calculate the life insurance needs. This is often set to the number of years to the end of the Insured Person's projection or the number of years until the Insured Person retires.

• The Inflation Rate is set by default to the General Inflation Rate from the Scenario Setup -> General page. You can adjust this rate if desired to indicate how the surviving spouse's income and expenses are expected to increase for the Life Needs Analysis calculations.
• The Rate of Return is the nominal rate of return earned on the life insurance proceeds. Enter 0% if the proceeds will not be invested.
• The Core Method provides you with two options to calculate the recurring annual coverage needed. The default option is Income Replacement and the second option is Expense Coverage.

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The Core Method allows you to select your preferred calculation for the recurring annual coverage needed. This calculates an annual coverage amount and then determines the present value of the life insurance required to cover the annual need for the Number of Years selected.

Income Replacement

The Income Replacement method (which is the default setting) allows you to indicate the amount of the Insured Person's income that you want to replace and the number of years to continue paying the income. In the example below, $70,000 is needed each year (adjusted for the Inflation Rate) for 15 years. Snap then calculates the amount of money needed today to invest earning the Rate of Return to pay out each future year's cash flow.

You can import the client's Insured Income based on Employment Income and Corporate Salaries (if applicable) as captured on the Planning page, and the Number of Years based on years until retirement or the end of the projection.

Expense Coverage

The Expense Coverage method allows you to indicate the Survivor's Expenses and Survivor's Income After Tax to see whether a shortfall exists. In the example below, $37,643 (calculated as $80,000 less $42,357) is needed each year (adjusted for the Inflation Rate) for 15 years. Snap then calculates the amount of money needed today to invest earning the Rate of Return to pay out each future year's cash flow.

The Survivor Expenses and Survivor Income Before Tax should reflect the expected values in the case that John has passed away (e.g., consider whether Jane will work full-time or part-time if John passes away, or perhaps not continue working). If Jane needs to continue saving for retirement, include her retirement savings within the Survivor Expenses field. Survivor Income After Tax is automatically calculated based on the province of residence and using only the personal amount credit. 

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

You can create additional analyses for other parties. For example, if John currently supports his parents, you could add 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.

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In the Liabilities section, you will specify the percentage of debt to be paid immediately after the Insured Person passes away.

In Analysis #1, Jane wants to have 100% of their debts paid off upon John's death, and in Analysis #2 none of them paid off.

She also wishes to include the children's education cost and specified amounts for funeral and other expenses. You can add up to 5 custom liabilities and adjust the title to reflect your client’s real-world obligations more accurately.

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In the Available Resources section, there are Existing Life Insurance policies and other Assets. Snap will propagate all current policies entered in the software for the existing life insurance policies. You can then specify the percentage that will be used in each analysis. Also, the Financial 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 life insurance policies but there are Non-registered Assets.  Jane wishes to use 100% of the Non-registered Assets.

On the bottom left of the Setup page, there is a Saved/Edited indication. You can proceed directly to the Details of the Life Insurance Needs Analysis or you can go to the top of the Setup page to access a Summary of all analyses.

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By default, Liabilities and Resources are based on the combined values for a couple. If you wish to set the values based on individual debts and assets, you can enable the Advanced Option at the bottom left of the page.

For example, this allows you to repay only the insured client's debt, or only use the non-registered assets of that individual, leaving the spouse's assets out of the calculation.

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The Summary page shows the Total Life Insurance Required before and after accounting for other resources such as existing life insurance and assets. To update the analysis, click Setup 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.

Table view

The details table breaks down the Income Replacement needs, the life insurance required to pay off Debt and Expenses, the Available Resources and the Extra Life Insurance Required each year.  You can see the changing life insurance needs over time with adjustments for inflation.

You can edit any blue values on this page by clicking them and then applying the change to a single year or to a period of time. For instance, Jane may be comfortable with 70% of John's income for the first 5 years and then 50% for the following 10 years once they've settled into their new circumstances. This adjustment would impact the required life insurance for Income Replacement.

Chart view

The chart view of the Life Needs Analysis details can help you illustrate how the life insurance needs change over time. You can export the chart using the menu option in the top-right corner.

Toggle between the views by clicking on the Table/Chart buttons. This selection is remembered for each analysis and carries over to the Client Report. You can change this selection in the Client Report -> Report Editor if needed.

Client Report

To include the Life Insurance Needs Analyses in your report, in the Client Report -> Report Builder, select Life Needs Analysis and individual analyses under the Gallery and drag and drop them under Included Pages if they have not already been included.

In the Report Editor, you can view the Life Needs Analysis and add comments.

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When a scenario containing a Life Insurance Needs Analysis is rebased in the new year, this analysis gets rebased as well:

• The first year of the analysis is changed to the current year.
• The Inflation Rate is applied to Personal Income, Survivor Expenses, custom Liabilities, and Other Assets.
• The Analysis Horizon and the Number of Years are reduced by the number of rebased years.
  • If the needs analysis has ended in the new year, it will be removed from this rebased scenario. However, you can still access it through the original scenario.

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