Love in the Time of the Corona Virus: Basic Estate Planning Considerations Part III

Love in the Time of the Corona Virus

Basic Estate Planning Considerations – Part III


Overview

If the Corona Virus were not actually happening to each of us in Real Time and took place exclusively in Latin America, the Pandemic would actually become a Soap Opera, e.g. novela, shown everywhere in Latin America. My former sister-in-law who is a native French speaker who learned Spanish and sold Spanish novelas around the world for a living. My early exposure to novelas came growing up in the Canal Zone. Believe or not, some novelas are actually very entertaining to watch.


There is a strong demand for Spanish or Brazilian soap operas around the world. Brazilians have told me that when a good soap opera catches the viewing public’s attention, the whole country comes to a stop to watch an episode. The one novela of Latin America derivation that garnered the attention of the “ Anglo-Sajon,” American viewer, is “ Ugly Betty” adopted from the Colombian soap opera “ Betty, La Fea.” Novelas proliferate in every cultural direction covering the lives of El Chapo, and a sundry of related “Narco Traficantes, “ as well as historical and cultural figures such as Simon Bolivar and Celia Cruz. In our current situation, let us hope that the Corona novela reaches its final chapter quickly.


This is the third installment of articles on basic estate planning. If you do not have the following basic estate planning documents –(1) Last Will and Testament; (2) Living Will; (3) Durable Power of Attorney; (4) Pre-Need Designation of Guardian; (5) Guardianship Provisions for Children;(6) Healthcare Power of Attorney, what are you waiting for?

This article focuses on the need for life insurance in the estate planning process. If the current situation has not made you pause and consider your own mortality, nothing will. In the past, a life insurer purchaser had to be pretty unselfish in order to purchase a product that they would never personally benefit from. These days life insurers have developed products that provide benefits during lifetime for the insured in the event of a chronic illness. It is a critical part of the basic estate planning process. The life insurance industry has responded with innovation and flexibility to make life insurance easier to purchase than ever before.


How Much Life Insurance Do You Need?

I worked in the life insurance agencies before I went to law school and after I went to law school. Life insurance is a financial product that solves many financial problems. A primary focus of life insurance is its role as a financial vehicle for income replacement. Life insurance is the ideal asset to replace the insured’s income when he dies. How much life insurance does a family need? Can you be over insured? Maybe, but I doubt any beneficiary would disclaim part of a death benefit because the family could not find a valid financial need for the extra death benefit.


Everybody likes rules of thumb. However, a rule of thumb never adequately addresses the nuances of a specific family’s planning situation. As a result, a rule of thumb such as “ten-times earnings” is better than nothing but fails to take into consideration the hopes and dreams and plans of a family.


The best approach is a financial needs analysis. Most life insurers provide their agents with computer tools to determine how much life insurance is needed. These programs provide the opportunity to make adjustments in the assumptions including the investment rate of return of the death benefit proceeds and annual rate of inflation. The categories include estimates for final expenses; an emergency fund; mortgage fund; education costs; lifetime monthly income need or the monthly income need for an adjustment period. The analysis calculates the present value of the future needs and measures these needs against available liquid funds to meet these needs including any existing life insurance. The gap or shortfall I the amount of life insurance needed.


My planning view has always been to determine the life insurance need using a financial needs analysis. I believe the correct amount of life insurance purchased is the product that allows you to purchase an amount of coverage for the time period needed that fits within a client’s budget. Permanent life insurance is a wonderful product except if you need $3 million of coverage, but the only way to meet the need is through the purchase of twenty-year level term life insurance. Buy the amount that you need now in a manner that fits within your budget!


Planning Example