Life Insurance
Personal Financial Plan
Analysis
4. Your life insurance needs are dependent upon several factors. The template below employs the budget method discussed
in the text to determine the amount of insurance that you need. Complete the worksheet by filling in the appropriate information
to determine your life insurance needs.
1. Annual living expenses
(Refer to your personal cash flow statement developed in Chapter 2 to determine this figure.)
2. Minus spouses disposable after- tax income
3. Minus interest or dividends from savings*
4. Minus other income
5. Annual living expenses to be replaced by insurance (line 1 minus lines 2, 3, and 4)
6. Assuming a 6 percent rate of return and the number of years of expenses for which you will
need coverage, determine the present value (line 5 times PVIFA for					years at 6 percent)	6.00%		-
7. Insurance needs for annual living expenses (line 5 times line 6)
8. Special future expenses
9. The number of years until line 8 occurs multiplied by the present value of a dollar assuming 6 percent
(line 8 times PVIF__________ years at 6 percent)
10. Insurance needs for special future expenses (line 8 times line 9)
11. Current debt to be repaid by insurance proceeds
12. Educational/training expenses for spouse to be paid by insurance proceeds
13. Value of existing savings
14. Final expenses (Funeral and other related items)
15. Life insurance provided by employer
Total Insurance Needs
* This number should be adjusted if savings are to be liquidated and included in line 13. Only the interest and dividends from
those savings not counted in line 13 should be included here.
5. Review the following information about types of life insurance plans. Indicate how suitable each type is for your situation
in the right-hand column.
Type of
Insurance Plan		Benefits		Suitability
Term Insurance		Insurance benefits provided to beneficiary
Whole Life Insurance		Insurance benefits provided to beneficiary and policy builds a cash value over time
Universal Insurance		Insurance benefits provided to beneficiary and policy builds a cash value over time
Term to 100 Insurance		Insurance benefits provided to beneficiary
6. If you have determined that you need life insurance, obtain premiums for the policy type and amount you desire at
http://www.termforsale.net/canterm4sale.php.
www.termforsale.net
Policy Type
Name of Insurance Company
Total Premium
7. Make any necessary changes to your personal cash flow statement to reflect premiums for life insurance.
Personal Cash Flow Statement
Income			This Month
Disposable (after-tax) income
Interest on deposits
Dividend payments
Other
Total Income
Expenses
Rent
Cable TV
Electricity and water
Telephone
Groceries
Life insurance
Health insurance
Clothing
Car expenses (insurance, maintenance, and gas)
Recreation
Other
Total Expenses
Net Cash Flows
Decisions
1. What steps have you taken or will you take to ensure that your health insurance needs are
being met?
2. What are your disability insurance needs? What amount of additional coverage, if any, do
you require?
3. Does your age, personal health history, or family health history indicate that you should
consider critical illness or long-term care insurance?
4. Do you need life insurance? If so, how much and what type of policy will suit your
needs?
5. What do you anticipate your life insurance coverage needs to be in the future?