| Parts 1 and 2 of this series have shown you how to | | | | table composed of: |
| develop basic financial statements and build out | | | | 1. Financial Requirements. Your survivor's requirements |
| projections. We also reviewed your risk management | | | | include the following:a. Lifestyle needs. To determine |
| position, focusing on what would happen should you | | | | this number, look at the annual expenses in your |
| become disabled and lose your ability to produce | | | | projections and take the net present value. This will |
| income. In this part, we will determine how to analyze | | | | most likely be the largest component of your |
| survivor needs. | | | | requirements. Play around with your survivor's |
| While some insurance salesmen/women will go by a | | | | expense assumptions. You will see how raising or |
| "ten times salary" rule of thumb, you might be able | | | | lowering expenses could have a large impact on this |
| to get a more accurate figure using the financial | | | | number.b. Liabilities. Take care of your bills. You don't |
| projections you have already developed. Like all | | | | want to leave your spouse with a big mortgage.c. |
| projections, you will need to use assumptions. | | | | Final Expenses. Consider potential final medical |
| Determining survivorship needs could require a new | | | | expenses as well as funeral expenses.d. Probate and |
| set of assumptions. | | | | Administrative Expenses.e. IRD and Estate Taxes |
| 1. When will you or your spouse die? Generally we | | | | (not always applicable at the first death). |
| use the end of the current year. | | | | Other needs you might want to plan for:a. |
| 2. When will your surviving spouse die? Generally use | | | | Emergency Reserve Fundb. Business Opportunity |
| 90 or 95 depending on that person's family life | | | | Fundc. Asset Acquisition Fundd. Children's College |
| expectancy history. | | | | Educatione. Children's Wedding |
| 3. Will the survivor's expenses decrease? This is not | | | | 2. Financial Resources. In this section, you show what |
| always the case. While some expenses will be cut in | | | | assets and income streams you have to support |
| half, other expenses might increase. You need to | | | | Financial Requirements:a. Total Investment Assets |
| review your current budget and determine how it | | | | (less taxes due on sale)b. Present value of social |
| would change. | | | | security and other income streams such as pensions |
| 4. What would be the tax rate on investments | | | | and deferred compensationc. Current life insurance |
| should you need to liquidate them? | | | | death benefits |
| 5. What rate of return would you receive on your | | | | 3. Insurance Needs. By subtracting your Financial |
| current investments? Would you be more | | | | Requirements from your Financial Resources, you will |
| conservative? | | | | be left with a net figure. If this figure is negative, it |
| 6. What rate of return would you receive on | | | | indicates a life insurance need. If it is positive, you |
| insurance proceeds if you invested them? | | | | probably do not need additional life insurance. |
| Make another copy of your Net Worth and Cash | | | | It goes without saying that a premature death can |
| Flow Projections and add in these new assumptions. | | | | leave survivors stunned and unable to act. It is during |
| Eliminate salaries earned by the deceased and include | | | | moments like this that you can realize your financial |
| a lump sum inflow from insurance proceeds. | | | | planner's best value. Being the quarterback of your |
| If you have built your cash flow projections | | | | financial adviser team, he or she can take charge, |
| correctly, at the end of each year, the difference | | | | coordinating the activities of your insurance agent, |
| between your incomes and outflows will result in a | | | | investment manager, tax professional and attorney. |
| surplus or deficit. You should also include a line below | | | | All will need to be contacted. All will play a role in the |
| the current surplus or deficit titled Accumulated | | | | transitions that will take place in a survivor's life. Many |
| Surplus/Deficit. Without spending a lot of time | | | | surviving spouses are just too overwhelmed to take |
| liquidating assets to cover deficits, you can get a | | | | action, or to even be able to think what needs to be |
| general idea of your situation by looking year by year | | | | done. |
| at your total net assets and comparing that with | | | | It doesn't matter if you hire a professional or do the |
| your accumulated Surplus/Deficit. If your deficit | | | | plan yourself. Even if your accuracy isn't spot on, at |
| exceeds your net assets, you will then know that | | | | least you have a good understanding of your needs |
| you have a gap in your insurance coverage. | | | | and have the opportunity to implement products to |
| Remember, the deficit will probably be greater as | | | | fill your financial gaps. Visit Free Financial Planning |
| income taxes will most likely be assessed on your | | | | Advice for more information on building your own |
| investment liquidations. | | | | financial plan. |
| Another way to determine your need is to build a | | | | |