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. 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).

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.

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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 compare two cases for John Snapper. One 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.

The Analysis Horizon is the number of years to include in the analysis.  This is often set to the period between the client's current age and the first spouse's target retirement age, or if they are retired, the number of years until the end of the projection.

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

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The Income Replacement section is the 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. Insurance is only required if her spending needs exceed her after-tax income.    You can update her future income and spending needs 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, include her retirement savings within the Survivor Spending Needs field.

The Capital Depletion checkbox has been enabled here, the most common setting.  With this enabled, the required insurance will be calculated to leave a zero balance at the end of the replacement period.   In this example, an insurance lump sum value is calculated which will grow at a rate of return of 3.5% and be depleted after the Analysis Horizon of 40 years.

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

In Analysis #1,  Jane wants to have 100% of John's debts paid off upon his death, and in Analysis #2 none of them paid off. She wishes to include the children's education cost and specified amounts for funeral and other expenses.

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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 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 insurance policies but there are Non-registered Assets.  Jane wishes to use 100% of the Non-registered Assets.

Click Save to open the Insurance Needs Analysis Summary page.

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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 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.  In this example, the insurance required for Income Replacement and Debt and Expenses decreases over time as fewer years remain to replace income and the debts and education needs have decreased.

You can edit any blue values on this page by clicking them. For example, you can edit the Survivor Income upon Janes's retirement. Enter the values in real dollars. Here we've entered her expected CPP benefit at age 60 and the CPP and OAS income at age 65.

With lower income after age 60, this will automatically increase the life insurance need.

To include the Insurance Needs Analyses in your report, in the Client Report -> Report Builder, select Insurance 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 Insurance Needs Analysis and add comments.

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