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Calculating Your Life Insurance Needs with Victoria Gibbs · Financial Futures: A Measured Wealth Podcast

• 0:01
  SPEAKER_05: How do you know how much life insurance is right for you and your family?
• 0:05
  SPEAKER_05: Stay with us as we explore what factors to consider in that calculation.
• 0:12
  SPEAKER_00: The information and opinions presented in this podcast, including the views of guests not affiliated with measured wealth, is for general informational and educational purposes only and should not be considered investment, tax, or legal advice.
• 0:25
  SPEAKER_00: Any references to specific securities, products, or services do not constitute a recommendation or endorsement.
• 0:31
  SPEAKER_00: All investments involve risk, including the possible loss of principal.
• 0:35
  SPEAKER_00: Past performance is not indicative of future results.
• 0:38
  SPEAKER_00: Listeners should consult their own financial professionals before making any financial decisions.
• 0:42
  SPEAKER_00: Measured Wealth Private Client Group is registered with the Securities and Exchange Commission.
• 0:46
  SPEAKER_00: This registration does not imply a certain level of skill or training.
• 0:50
  SPEAKER_00: Insurance products are available through Measured Wealth Risk Management.
• 0:54
  SPEAKER_00: Employees of Measured Wealth who are licensed as insurance agents receive compensation on the sale of insurance products.
• 1:00
  SPEAKER_00: This creates a conflict of interest when insurance products are recommended.
• 1:04
  SPEAKER_00: Insurance and annuity guarantees are subject to the claims paying ability of the issuing insurer.
• 1:12
  SPEAKER_03: Welcome to Financial Futures, a measured wealth podcast powered by the team at Measured Wealth along the beautiful New Hampshire Seacoast.
• 1:21
  SPEAKER_03: Each episode, we're bringing you fresh insights on retirement, investing, and everything you need to take control of your financial future.
• 1:29
  SPEAKER_03: Whether you're preparing for retirement or already living it, we're here to help you make informed choices with confidence.
• 1:34
  SPEAKER_03: To kick off today's conversation, here's your host, certified financial planner and chartered financial analyst, George Zacharopoulos.
• 1:47
  SPEAKER_05: Hello everyone, I'm George Zacharopoulos.
• 1:49
  SPEAKER_05: Today we're talking about the multiple approaches, what goes into that calculation for your life insurance needs.
• 1:56
  SPEAKER_05: I'm joined by returning guest, Victoria Gibbs.
• 1:59
  SPEAKER_05: Vicky needs no introduction.
• 2:00
  SPEAKER_05: He's been on the podcast multiple times.
• 2:03
  SPEAKER_05: Vicky, great to have you back.
• 2:05
  SPEAKER_05: How is everything?
• 2:06
  SPEAKER_01: Everything is great.
• 2:07
  SPEAKER_01: It's a wonderful day outside and uh interesting topic of conversation.
• 2:11
  SPEAKER_05: Yeah, no, this is going to be a great conversation today, Vicky.
• 2:14
  SPEAKER_05: We're going to talk about what goes into that calculation for life insurance.
• 2:18
  SPEAKER_05: And there's a lot of things that could go into it, but let's start broadly.
• 2:22
  SPEAKER_05: Someone comes to you, they ask you, hey, Vicki, how much life insurance do I need?
• 2:28
  SPEAKER_05: Where do you start that conversation?
• 2:30
  SPEAKER_02: I would start that conversation with wanting to understand what is this client's goal.
• 2:35
  SPEAKER_02: And that's always a good starting point for any conversation, really.
• 2:39
  SPEAKER_02: But as far as a basic, super basic calculation, once we've gotten past a little bit of the why are we having this discussion, um, the very first thing that you might look at is say just a multiplication factor of your income, say ten times.
• 2:55
  SPEAKER_05: What are the possible goals that someone might have when thinking about purchasing life insurance?
• 3:00
  SPEAKER_02: So purchasing life insurance, you might be thinking, you know, I've got this debt, or, you know, my family needs my income.
• 3:08
  SPEAKER_02: Or or getting on the further end of it, I'm gonna have my family's gonna have an estate tax need in the end when I pass away, or I'd like to create a legacy.
• 3:17
  SPEAKER_02: So we can go everywhere from very simple, you know, I have this mortgage that I want to make sure it can be paid off when I die, or put my kids through college if I'm not here, all the way out to there are future generations and I want to do something great for them.
• 3:31
  SPEAKER_05: So life insurance isn't just for uh young parents out there with children.
• 3:36
  SPEAKER_05: It could potentially carry through life, right?
• 3:38
  SPEAKER_02: Oh yeah, it can go beyond that.
• 3:40
  SPEAKER_02: Get a generation skipping trust in here, and you're going out, you're going even further into the future.
• 3:45
  SPEAKER_05: All right.
• 3:46
  SPEAKER_05: So let's talk about what goes into the calculation.
• 3:49
  SPEAKER_05: Uh what are some of those key components to factor?
• 3:52
  SPEAKER_02: So very basically, um, the like I said, the very first thing that we might look at is your income.
• 3:57
  SPEAKER_02: Your income, your spouse's income.
• 3:59
  SPEAKER_02: That's the the super basic, you know, somebody's just saying 10 times your income, whatever.
• 4:04
  SPEAKER_02: It's not taking into account anything else.
• 4:07
  SPEAKER_02: So it's a starting point, but it's not really where we want to land.
• 4:11
  SPEAKER_02: Adding on top of your income, we want to look at what debts do you have?
• 4:14
  SPEAKER_02: Is there a mortgage?
• 4:16
  SPEAKER_02: Do you have a family with young children?
• 4:17
  SPEAKER_02: Do you want them to go to college at some point?
• 4:20
  SPEAKER_02: And maybe you want to create that funding for college if you're not there to be creating that funding in the future.
• 4:26
  SPEAKER_02: Other things that you may want to look at getting more complex.
• 4:30
  SPEAKER_02: Um, how many years do you expect to keep working?
• 4:33
  SPEAKER_02: What do you think taxes are gonna look like?
• 4:35
  SPEAKER_02: What do you think inflation is gonna look like?
• 4:36
  SPEAKER_02: Is there going to be an estate tax need?
• 4:38
  SPEAKER_02: Do you want to leave a legacy?
• 4:40
  SPEAKER_02: Do you want to leave a charitable legacy?
• 4:42
  SPEAKER_02: Uh so there are really a huge number of components that could come into it.
• 4:46
  SPEAKER_02: And I don't I know I just made it sound really, really, really complicated.
• 4:50
  SPEAKER_02: Um, but that was just a lot of factors that could go into it.
• 4:54
  SPEAKER_02: I'm not saying that all of this always goes into it.
• 4:57
  SPEAKER_05: Let's isolate the income replacement.
• 5:00
  SPEAKER_05: So let's say there's a family, uh, two spouses.
• 5:03
  SPEAKER_05: If one of them were to pass prematurely, unexpectedly, what goes into that income replacement calculation?
• 5:12
  SPEAKER_02: Aaron Powell What do they still need to pay off?
• 5:14
  SPEAKER_02: So what what would have been paid off if it were still two spouses the whole time?
• 5:18
  SPEAKER_02: You would have still been saving for retirement, you would have still been saving for your kids' college education, you would have been paying down your mortgage, and all of that changes a lot when one spouse passes away because now that surviving spouse, they're very likely not working at their job anymore the way that they were.
• 5:34
  SPEAKER_02: They have a whole lot of other stuff that used to be split 50-50 with another person, and now they don't have that partner anymore.
• 5:40
  SPEAKER_02: So now they have to spend more of their time, more of their energy doing all these other things.
• 5:45
  SPEAKER_02: So it can become more expensive.
• 5:47
  SPEAKER_02: They need to hire help because you know they used to be able to take care of the house.
• 5:51
  SPEAKER_02: Now they can't do it all.
• 5:52
  SPEAKER_02: There are just a lot of future goals.
• 5:54
  SPEAKER_02: And what are your future goals?
• 5:56
  SPEAKER_02: You wanted to send your kids to college?
• 5:57
  SPEAKER_02: That's a lot harder on one income.
• 5:59
  SPEAKER_02: A lot to consider.
• 6:00
  SPEAKER_05: Right.
• 6:01
  SPEAKER_05: Uh so let's say one income is lost in the household and expenses haven't really changed that much, future obligations haven't really changed that much.
• 6:12
  SPEAKER_05: You still have, you know, uh a mortgage that needs to be paid every month.
• 6:17
  SPEAKER_05: You still have, like you mentioned, children that might go to college and and that needs to be paid for.
• 6:22
  SPEAKER_05: Uh you have your spouse's retirement who may not have you know your social security or there's there's now potentially not a joint income in retirement.
• 6:33
  SPEAKER_05: So uh and and and the potential for, you know, if if the if there are young children um in the household, the surviving spouse may not work because they need to take care of the children and make sure that everything is okay there.
• 6:46
  SPEAKER_05: So there might not be any any income coming in.
• 6:49
  SPEAKER_05: So Yeah.
• 6:50
  SPEAKER_02: So a life insurance death benefit in that sort of situation can really help keep the family living their lifestyle the way that they've been living it without having to stress, like, oh you know, mom or dad has to go to work, but then they have to take care of the kids, and then they have to do all the house stuff, they will never get to sleep because there's too many things for one person to do.
• 7:09
  SPEAKER_02: So with that life insurance death benefit, you know, it's tax-free and it's created this immediate pool of liquidity that you can use to carry on that lifestyle that you've enjoyed this whole time if you've got the right number.
• 7:21
  SPEAKER_05: Right.
• 7:22
  SPEAKER_05: Determining the right number, this is an important factor because I think we're looking at, okay, something happens, what's going to be the household shortfall in in funds on an annual basis?
• 7:34
  SPEAKER_05: And that might be a rising amount due to inflation.
• 7:38
  SPEAKER_05: Yeah.
• 7:39
  SPEAKER_05: Okay.
• 7:40
  SPEAKER_05: So we need to bring that back to the present to determine really how much, maybe, and it and it all depends too.
• 7:49
  SPEAKER_05: Is there an estate component in this where we want to determine uh how in life insurance uh proceeds can be invested to determine how much income to generate?
• 8:01
  SPEAKER_05: Or is that life insurance benefit just going to be spent down to nothing over the next you know 30, 40, 50 years, whatever it happens to be?
• 8:09
  SPEAKER_05: So very important in that calculation to determine and and that comes back to, hey, what's the appropriate amount to have?
• 8:15
  SPEAKER_05: Well, do you also have a an estate planning goal as well?
• 8:19
  SPEAKER_05: Do you want to leave a legacy?
• 8:21
  SPEAKER_05: Do you want to build a legacy with life insurance?
• 8:23
  SPEAKER_05: Are you early in your career, uh early in starting a family?
• 8:27
  SPEAKER_05: And this goes back to actually, you know, looking looking at the financials too, understanding what the purpose is, and then looking at the financials, the balance sheet, looking at future cash flows.
• 8:37
  SPEAKER_02: Yeah, the goals, the financials, um, being part of a more complete financial plan is really all key to getting down to the right number and understanding what do you need, what would be nice to have, and how does this all actually work?
• 8:52
  SPEAKER_02: Where's your shortfall?
• 8:53
  SPEAKER_02: How much how much has to be there?
• 8:55
  SPEAKER_05: What other types of financial obligations are included in that calculation?
• 9:00
  SPEAKER_05: We talked about college education, we talked about potentially paying off a mortgage, we talked about you know income.
• 9:08
  SPEAKER_05: What what else have we missed there?
• 9:10
  SPEAKER_02: Uh we haven't really discussed, say, a surviving spouse in retirement.
• 9:15
  SPEAKER_02: Uh everyone knows that you know long-term care expenses can be quite a lot if necessary.
• 9:20
  SPEAKER_02: And now if you have a a single widow instead of a married couple, that might prompt them to move into, say, an assisted living or an independent living, changing how they thought the their later years were going to be.
• 9:32
  SPEAKER_02: You know, you thought you were gonna stay at home with your spouse and you were both going to age gracefully in this home, and now one of you is no longer there, your income is completely different, your tax bracket is different, you don't have that help on the day-to-day that you used to have.
• 9:47
  SPEAKER_02: So having that life insurance can really help to uh to fund what you thought you were ready for, but maybe now you're not because you've lost your partner sooner than expected.
• 9:58
  SPEAKER_02: Well, sooner than expected.
• 10:00
  SPEAKER_02: No one ever expects this, but you have to plan for it.
• 10:04
  SPEAKER_05: So you've calculated the amount of life insurance that's needed.
• 10:09
  SPEAKER_05: Okay, the amount of capital that's needed to for for your family to um continue with the same level of um their same lifestyle.
• 10:19
  SPEAKER_05: Lifestyle, yeah, correct.
• 10:21
  SPEAKER_05: What gets subtracted from that that need, that life insurance need?
• 10:26
  SPEAKER_05: Uh you know, looking at the balance sheet, can we take any assets into consideration?
• 10:30
  SPEAKER_02: Yeah.
• 10:30
  SPEAKER_02: So as part of the financial plan, you would look at what assets they do have, how much do they have of their own resources that they can use to fund their lifestyle in future years?
• 10:41
  SPEAKER_02: So first you would look at what there is, and then again, where is that shortfall?
• 10:44
  SPEAKER_02: The shortfall is really where we're what we're trying to find.
• 10:48
  SPEAKER_02: So you already have, you know, exhibit A, exhibit B, these are all things that you're planning on using.
• 10:53
  SPEAKER_02: If we take out that one chunk of income, where where are we where are we now missing funds that we need to keep that retirement going?
• 11:02
  SPEAKER_05: And um, what does a measured wealth analysis look like?
• 11:06
  SPEAKER_05: Is it part of the financial planning process?
• 11:08
  SPEAKER_02: Ideally, yes.
• 11:09
  SPEAKER_02: So we always want to understand our clients and we want to make the best recommendations possible.
• 11:14
  SPEAKER_02: And that can only be done when we really understand your situation.
• 11:18
  SPEAKER_02: So if you just come in saying, hey, I need some life insurance and I make$100,000 a year, sure, maybe we write you a million-dollar policy and call it a day, but that's not a very educated decision.
• 11:29
  SPEAKER_02: What we'd like to know more about is, you know, looking into a financial plan, maybe it's not the full bells and whistles, but hey, let's let's look at your assets, your liabilities, income of you and your spouse.
• 11:40
  SPEAKER_02: What does your household look like?
• 11:41
  SPEAKER_02: Do you think you're gonna have any more kids?
• 11:43
  SPEAKER_02: Because that's also a thing.
• 11:45
  SPEAKER_02: If you are planning your life insurance and right now you have one child or you have zero children, and then you wind up having two, three, four if you're uh if you're so inclined, that changes the numbers drastically.
• 11:58
  SPEAKER_05: That's a good point.
• 11:59
  SPEAKER_05: So this isn't a one-time event.
• 12:01
  SPEAKER_05: You should be looking at your insurance coverage on a periodic basis, right?
• 12:04
  SPEAKER_02: Oh yes.
• 12:05
  SPEAKER_02: And if you have insurance already and you think, okay, I'm golden, I'm set, you might want to not reconsider, but take a second look at the policies that you have.
• 12:14
  SPEAKER_02: Are they still meeting your needs?
• 12:16
  SPEAKER_02: Is it still the right amount of coverage for you?
• 12:18
  SPEAKER_02: Are there uh additional benefits on this coverage that you wish you had or that you have and you no longer need that you maybe you're paying an extra fee for?
• 12:27
  SPEAKER_02: So it's always good to take a step back and look at your policies and just see if they're still working for you in the way that you want them to.
• 12:35
  SPEAKER_05: Yeah.
• 12:35
  SPEAKER_05: Having children is certainly an event that would trigger, you know, having potentially some more life insurance.
• 12:41
  SPEAKER_05: But what other events are there that would trigger the need to maybe revisit that that life insurance calculation and make sure that you you still have the proper amount?
• 12:49
  SPEAKER_05: Um, could it be something like a you know, someone transitioning with a healthcare event, like a disability?
• 12:54
  SPEAKER_05: Could it be um any big lifestyle changes, I would say.
• 13:00
  SPEAKER_02: If you're if you're moving to a, you know, you started off in your tiny little shoebox of a starter home, which I did, uh, and then you move on to a more reasonably sized home that can fit two adults, you know, you're taking on a bigger, presumably a larger debt obligation there.
• 13:17
  SPEAKER_02: Maybe with that larger home comes you've decided to have animals or have children or have some other thing.
• 13:23
  SPEAKER_02: Basically any large changes in your life, you might want to reconsider and just take a look at how much insurance you have.
• 13:30
  SPEAKER_02: And not even just life insurance, you know, all of your insurance.
• 13:33
  SPEAKER_02: Bigger home means more homeowners insurance, uh, possibly more umbrella insurance.
• 13:39
  SPEAKER_02: Um so it's it's all just spreading the risks out to the insurance companies.
• 13:44
  SPEAKER_02: So why not make it as up-to-date as it possibly can be whenever you have a significant change?
• 13:49
  SPEAKER_02: Even if you've had a uh you change jobs and you've got a significant, significant increase in income, you may want to take a look at that.
• 13:58
  SPEAKER_05: Let me ask you, um, Vicky, what's the risk of getting this wrong?
• 14:02
  SPEAKER_02: Well, on the good side, maybe you estimate too high and when you pass away, there's way more funds than anyone ever thought was needed.
• 14:11
  SPEAKER_02: And that can be a great problem to have.
• 14:13
  SPEAKER_05: It's a good problem.
• 14:14
  SPEAKER_02: But on the flip side, if you get it wrong and you just go for the bare minimum, I think this will be fine.
• 14:20
  SPEAKER_02: I mean, if you're the one who was insured, you're not going to be around to see what the aftermath is.
• 14:26
  SPEAKER_02: But if it's the wrong number and it's a little short, it can make things really uncomfortable.
• 14:30
  SPEAKER_02: If if your spouse was counting on, you know, this is what they're living on for the rest of their lives, if it's not the right number and they have to start, you know, really cutting expenses or downsizing things more than more than you'd ever really thought about, or maybe the travel needs to stop.
• 14:46
  SPEAKER_02: Having the wrong amount on the small side is still better than not having anything, but it it can make things difficult for the surviving family.
• 14:58
  SPEAKER_05: One additional element to to life insurance is the estate planning part.
• 15:04
  SPEAKER_05: How do people use life insurance for uh estate planning?
• 15:08
  SPEAKER_05: What are some reasons to bring in some life insurance?
• 15:10
  SPEAKER_02: So a really basic use for life insurance in the estate planning world is uh say that you, you know, you know that your estate is significant and perhaps you have a bunch of properties, some artwork, um, some investment accounts, and there's going to be an estate tax that is owed when you pass away.
• 15:30
  SPEAKER_02: Life insurance creates that pool of funds immediately.
• 15:35
  SPEAKER_02: It's tax-free.
• 15:36
  SPEAKER_02: So your heirs aren't trying to sell off a house or sell off artwork or sell off other items that they didn't want to sell.
• 15:45
  SPEAKER_02: This is just creating that right those dollars right there, they can be used specifically for the estate tax paying off.
• 15:53
  SPEAKER_02: So rather than going through and, you know, if it's if it's real estate and you've got several heirs who all, you know, they want to keep the summer home or they want to keep mom and dad's family home and they don't want to sell this, you still have to pay your taxes.
• 16:06
  SPEAKER_02: So what's going to be the easiest way to satisfy that obligation?
• 16:10
  SPEAKER_02: Leave your assets to your heirs, just have this death benefit.
• 16:13
  SPEAKER_05: Hey, Vicky, this was great.
• 16:15
  SPEAKER_05: Really appreciate the insights.
• 16:17
  SPEAKER_05: Big takeaway, really, the process is just important as the number.
• 16:22
  SPEAKER_05: If you got value from today's conversation, the next step isn't to guess your number, it's to go through a process.
• 16:28
  SPEAKER_05: Sit down with someone who can walk you through these calculations and help you understand what your life insurance is actually solving for.
• 16:35
  SPEAKER_05: Because at the end of the day, this isn't about a number, it's about protecting the people who matter most.
• 16:39
  SPEAKER_05: Vicky, thank you again for joining me today, and thanks everyone for tuning into Financial Futures, a Measured Wealth podcast.
• 16:46
  SPEAKER_05: If you enjoyed today's episode, be sure to follow or subscribe on your favorite podcast app so you never miss an update.
• 16:52
  SPEAKER_05: Want to learn more or get in touch?
• 16:53
  SPEAKER_05: Head over to measuredwealth.net where you'll find prior episodes, helpful financial planning guides, and more.
• 16:59
  SPEAKER_05: You can also call us at 603-431-1444 or email at info at measuredwealth.net.
• 17:07
  SPEAKER_05: That's info at measuredwealth.net.
• 17:09
  SPEAKER_05: Thanks again for listening, and remember the future will someday be the present.