NAVIPLAN PREMIUM LEARNING GUIDE. Set insurance goals

Transcription

1 NAVIPLAN PREMIUM LEARNING GUIDE Set insurance gals

2 Cntents Set insurance gals 1 Learning bjectives 1 NaviPlan planning stages 1 Client case 2 Describe the assumptins and analysis methds available fr determining insurance needs 3 Which analysis methd shuld yu chse? 4 Gal and Expense Analysis methd 4 Incme Cverage Analysis methd 4 Additinal insurance assumptins 5 Insurance assumptins 5 Changing the default analysis methd 6 Define survivr incme bjectives 7 Survivr incme Assumptins tab 8 Survivr incme Onging Expenses tab 9 Survivr incme Lump Sum Needs tab 11 Survivr incme Asset Availability tab 12 Define disability incme bjectives 13 Disability incme Assumptins tab 14 Disability incme Onging Expenses tab 15 Disability incme Lump Sum Needs tab 17 Disability incme Asset Availability tab 18 Define lng-term care bjectives 19 Lng-term care Assumptins tab 20 Lng-term care LTC Expenses tab 21 Lng-term care Incme Adjustments During LTC tab 22 Lng-term care Asset Availability tab 23 Verify the data using stand-alne reprts 24 Exercises 28 Exercise questins 28 i

3 NaviPlan Premium Learning Guide: Set insurance gals Cnclusin 30 Answers t exercise questins 31 NaviPlan Premium resurces 33 ii

4 NaviPlan Premium Resurces Set insurance gals This mdule assumes that yu have cmpleted the Start planning mdule (available at supprt.eisi.cm/naviplan) and that yu already knw hw t create a client file. This mdule was created using the Average Tax methd. The Set insurance gals mdule will help yu set yur clients survivr, disability, and lng-term care gals. Learning bjectives Upn successful cmpletin f this mdule, yu will be able t Describe the assumptins and analysis methds available fr determining insurance needs. Define survivr incme bjectives. Define disability incme bjectives. Define lng-term care bjectives. Verify the data using stand-alne reprts. Nte: Each learning bjective is identified with a puzzle piece icn. NaviPlan planning stages The fllwing diagram shws the planning stages yu can fllw in NaviPlan, frm creating a client file t presenting results. The learning bjectives in this mdule are part f the fllwing stages: Set gals, Analyze gals and develp recmmendatins, and Present results. 1

5 NaviPlan Premium Learning Guide: Set insurance gals Client case This mdule includes practice exercises using ne f the sample clients prvided in NaviPlan. The exercises have been designed specifically fr this mdule and assume that yu are wrking with the riginal data in the plan named Base Plan in the Dixn, Jim & Maria client file. Thrughut the mdule, we will be using this client case as an example. Setting insurance gals allws yu t cmpare them t yur clients existing insurance plicies and determine whether adequate cverage exists. Afterwards, yu will be able t analyze the varius incme needs and make recmmendatins t yur clients. Figure 1: Life Insurance Cash Flw Single Year Details (Jim Dies) reprt (Reprts menu Insurance Life Insurance Cash Flw Single Year Details if Jim Dies) 2

6 NaviPlan Premium Resurces Describe the assumptins and analysis methds available fr determining insurance needs NaviPlan prvides tw analysis methds t analyze yur clients survivr and disability incme needs: the Gal and Expense Analysis methd and the Incme Cverage Analysis methd. The lng-term care analysis in NaviPlan uses the Gal and Expense Analysis methd autmatically. Figure 2: Set Gals sectin Survivr Incme categry Client Objectives page In the next few pages, we will examine the fllwing: A. Which analysis methd shuld yu chse? Gal and Expense Analysis vs. Incme Cverage Analysis methds B. Changing the default analysis methd 3

7 NaviPlan Premium Learning Guide: Set insurance gals Which analysis methd shuld yu chse? Gal and Expense Analysis methd Detailed apprach where the primary bjective is t meet gals and cver expenses. Insurance analysis is integrated with the plan, and the required insurance amunt is calculated using all defined gals and expenses. Shuld be used with a cmpleted client plan as any changes made t the plan will affect the insurance analysis. Incme Cverage Analysis methd Simplified apprach where the primary bjective is t replace incme lst because f the insured s death. Only cnsiders liabilities, applicable savings strategies, the survivr s insurance premiums riginally entered, educatin and majr purchase gals, and the infrmatin entered in the Survivr Incme categry. Data entered elsewhere in the plan, such as lifestyle expenses, is nt included in the analysis. On the Annual Incme Needs tab, the need is stated as a current year pre-tax value. NaviPlan cnverts this pre-tax incme need int an equivalent current year after-tax expense. This incme need nly applies t the survivr analysis. Use this insurance analysis methd when nt all f the clients expenses and gals have been defined in the plan. 4

8 NaviPlan Premium Resurces Additinal insurance assumptins Inflws Outflws Plicy prceeds Asset usage Levels Gal and Expense Analysis Existing incmes (SI, DI, LTC)* Existing expenses (SI, DI, LTC)* Invested (SI) Incme stream (DI, LTC) Capital depletin (SI, DI, LTC)* Financial Assessment, Level 1 and 2 Plans Incme Cverage Analysis Existing incmes (SI, DI)* Frm defined pre-tax incme need (SI, DI)* Invested (SI) Incme stream (DI) Capital depletin (SI, DI)* Level 2 Plans Insurance assumptins Analysis begins Dec. 31 f the current year (SI) Jan. 1 f the next year (DI*) Age 80 (LTC*) Analysis ends Dec. 31 f the year the last client dies (SI) Client s retirement (DI*) After 4 years (LTC*) * Default can be mdified SI Survivr incme DI Disability incme LTC Lng-term care 5

9 NaviPlan Premium Learning Guide: Set insurance gals Changing the default analysis methd The default analysis methd can be changed fr individual plans r fr all subsequent new plans. By default, NaviPlan uses the Gal and Expense Analysis methd. This default can be changed n a per-plan basis n the apprpriate page in the Survivr Incme and Disability Incme categries. Figure 3: Set Gals sectin Survivr Incme categry Client Objectives page On the User Preferences - Plan Settings dialg bx Insurance tab, yu can change the default analysis methd fr all subsequent plans yu create. 6

10 NaviPlan Premium Resurces Define survivr incme bjectives There are three scenaris in which t mdel a life insurance analysis: if the client dies, if the c-client dies, and if bth clients die. All f the pages in this categry functin in much the same way. Figure 4: Set Gals sectin Survivr Incme categry Client Objectives page In the next few pages, we will examine the fllwing: A. Assumptins tab B. Onging Expenses tab C. Lump Sum Needs tab D. Asset Availability tab 7

11 NaviPlan Premium Learning Guide: Set insurance gals Survivr incme Assumptins tab Figure 5: Set Gals sectin Survivr Incme categry Client Objectives page Assumptins tab Key pints On the Assumptins tab, yu can verride the clients retirement ages and life expectancies, adjust the rates f return fr cash flw surpluses and liquidatins, and assign different tax rates. The data displayed under Adjust Milestnes and Tax Rates riginates frm the Plan Management sectin Assumptins categry, but can be verridden here t apply different assumptins. Fr cash flw surpluses and liquidatins, the default rate f return fr bth the pre-retirement and retirement perids is 6%, which is distributed equally amng the Interest, Dividends, Capital Gains, and Deferred Grwthfields. 8

12 NaviPlan Premium Resurces Survivr incme Onging Expenses tab Figure 6: Set Gals sectin Survivr Incme categry Client Objectives page Onging Expenses tab 9

13 NaviPlan Premium Learning Guide: Set insurance gals Key pints Annual Expenses details By default, 85% f lifestyle and medical expenses frm the Enter Financial Data sectin Cash Flw categry Cash Flw page are cvered. Bth pre-retirement and retirement expenses are included. Yu can clear the Use Defaults check bx and then enter a percentage t apply. Educatin Expenses details By default, 100% f educatin expenses are cvered. Surplus Strategy details Use this strategy t indicate whether any prjected surpluses during the survivrship perid shuld be saved r spent. Nte: By default, 100% f any life insurance surplus is saved. When saved, surpluses are invested in the life insurance prceeds asset. Analysis Surplus details If yu want t assume that the surpluses prjected when bth clients were alive were unrealistic (there were legitimate expenses that were unaccunted fr), and that these surpluses shuld be assumed t be spent during the survivrship perid (t maintain the clients standard f living), select the Assume surplus is spent check bx. Selecting the Assume surplus is spent check bx creates a mre cnservative analysis. 10

14 NaviPlan Premium Resurces Survivr incme Lump Sum Needs tab Figure 7: Set Gals sectin Survivr Incme categry Client Objectives page Lump Sum Needs tab Key pints Pay Off Outstanding Liabilities details Paying ff liabilities increases the immediate insurance need, but the survivr will have fewer expenses t wrry abut. Majr Purchase Gals details The default is t cver 100% f the gal, but the situatin may nt require it. Fr example, if ne spuse dies, the survivr might decide t cancel the purchase f the mtr hme and t take the children n a less expensive vacatin instead. Additinal Lump Sum Needs details This sectin can be used t mdel expenses such as burial and funeral csts. 11

15 NaviPlan Premium Learning Guide: Set insurance gals Survivr incme Asset Availability tab Figure 8: Set Gals sectin Survivr Incme categry Client Objectives page Asset Availability tab If the client r c-client dies, assets can be made available t cver expenses immediately r when the survivr retires. If yu dn t want t use an asset t cver expenses, yu can designate it as nt available. Key pints Selectins here will determine which assets are available t fund immediate needs and the survivr s nging expenses. Selectins here will affect the additinal insurance needs NaviPlan recmmends when assessing shrtfalls during the survivrship perid. 12

16 NaviPlan Premium Resurces Define disability incme bjectives There are tw scenaris in which t mdel a disability insurance analysis: if the client is disabled and if the c-client is disabled. The Client Objectives and C-client Objectives pages functin the same way. Unlike the survivr incme analysis, yu cannt mdel a scenari where bth clients are disabled at the same time. Figure 9: Set Gals sectin Disability Incme categry Client Objectives page In the next few pages, we will examine the fllwing: A. Assumptins tab B. Onging Expenses tab C. Lump Sum Needs tab D. Asset Availability tab 13

17 NaviPlan Premium Learning Guide: Set insurance gals Disability incme Assumptins tab Figure 10: Set Gals sectin Disability Incme categry Client Objectives page Assumptins tab Key pints The data displayed under Adjust Milestnes and Tax Rates riginates frm the Plan Management sectin Assumptins categry, but can be verridden here t apply different assumptins. The default value fr the ttal rate f return is 6% fr bth the pre-retirement and retirement perids, which is distributed equally between the Interest, Dividends, Capital Gains, and Deferred Grwth fields. 14

18 NaviPlan Premium Resurces Disability incme Onging Expenses tab Figure 11: Set Gals sectin Disability Incme categry Client Objectives page Onging Expenses tab Key pints Annual Expenses details By default, 100% f lifestyle and medical expenses frm the Enter Financial Data sectin Cash Flw categry Cash Flw page are cvered. Yu can clear the Use Defaults check bx and then enter a percentage t apply. Educatin Expenses details By default, 100% f educatin expenses are cvered. 15

19 NaviPlan Premium Learning Guide: Set insurance gals Surplus Strategy details Use these fields t indicate hw NaviPlan shuld treat any prjected surpluses during the disability perid. Nte: By default, 100% f any disability insurance surplus is saved. When saving, surpluses are invested in the disability insurance prceeds asset. Analysis Surplus details If yu want t assume that the surpluses prjected when the client r cclient becmes disabled are unrealistic (there are legitimate expenses that are unaccunted fr), and that any surpluses shuld be assumed t be spent during the disability perid (t maintain the clients standard f living), select the Assume surplus is spent check bx. 16

20 NaviPlan Premium Resurces Disability incme Lump Sum Needs tab Figure 12: Set Gals sectin Disability Incme categry Client Objectives page Lump Sum Needs tab Key pints Pay Off Outstanding Liabilities details Paying ff liabilities increases the immediate insurance need, but there will be fewer expenses t wrry abut while the client is disabled. Majr Purchase Gals details The default is t cver 100% f the gal, but this can be changed t a mre apprpriate percentage depending n the situatin. Additinal Lump Sum Needs details This sectin can be used t mdel expenses such as hme renvatins t accmmdate the disability, rehabilitatin equipment, assistive devices, r hme care. 17

21 NaviPlan Premium Learning Guide: Set insurance gals Disability incme Asset Availability tab Figure 13: Set Gals sectin Disability Incme categry Client Objectives page Asset Availability tab If the client r c-client is disabled, assets can be sld t cver expenses immediately r when the client retires. If yu dn t want t use an asset t cver expenses, yu can designate it as nt available. Key pints Selectins here will determine which assets are available t fund immediate needs and future expenses. Selectins here will affect the additinal insurance need NaviPlan calculates when assessing shrtfalls during the disability perid. Qualified assets are available at retirement by default, but can be specified as available at disability. 18

22 NaviPlan Premium Resurces Define lng-term care bjectives There are tw scenaris in which t mdel a lng-term care insurance analysis: if the client is in lng-term care and if the c-client is in lng-term care. The Client Objectives and C-client Objectives pages functin the same way. The lng-term care analysis in NaviPlan functins similarly t the survivr incme and disability incme analyses. Lng-term care analyses use the Gal and Expense Analysis methd by default. Figure 14: Set Gals sectin Lng-term Care categry Client Objectives page In the next few pages, we will examine the fllwing: A. Assumptins tab B. LTC Expenses tab C. Incme Adjustments During LTC tab D. Asset Availability tab 19

23 NaviPlan Premium Learning Guide: Set insurance gals Lng-term care Assumptins tab Figure 15: Set Gals sectin Lng-term Care categry Client Objectives page Assumptins tab Key pints The lng-term care perid cannt extend past the end f the assciated client s r c-client s life expectancy. The data displayed under Tax Rates riginates frm the Plan Management sectin Assumptins categry, but can be verridden here t apply different assumptins. 20

24 NaviPlan Premium Resurces Lng-term care LTC Expenses tab Figure 16: Set Gals sectin Lng-term Care categry Client Objectives page LTC Expenses tab Key pints By default, 100% f lifestyle and medical expenses frm the Enter Financial Data sectin Cash Flw categry Cash Flw page are cvered during the lng-term care perid. During the survivrship perid, the percentage cvered is reduced t 85%. This field matches the value entered n the Survivr Incme categry Client Objectives page Onging Expenses tab. Changing the value in ne place changes the value in the ther as well. Yu can clear the Use Defaults check bx, and then enter a percentage t apply. Expenses entered under Additinal Lng-term Care Expenses are specific t the lng-term care perid. Yu can set the default daily lng-term care expense amunt fr all plans n the User Preferences - Plan Settings dialg bx Insurance tab (User Preferences menu Plan Settings Insurance). 21

25 NaviPlan Premium Learning Guide: Set insurance gals Lng-term care Incme Adjustments During LTC tab Figure 17: Set Gals sectin Lng-term Care categry Client Objectives page Incme Adjustments During LTC tab Key pints Only incmes that are received by the client r c-client during lng-term care appear n this tab. These incmes were entered n the Enter Financial Data sectin Cash Flw categry Cash Flw page. Owner in LTC is the nly editable field. 22

26 NaviPlan Premium Resurces Lng-term care Asset Availability tab Figure 18: Set Gals sectin Lng-term Care categry Client Objectives page Asset Availability tab Key pints Use this tab t identify which assets will be used t cver lng-term care expenses. Assets listed n this tab were entered n the applicable pages in the Enter Financial Data sectin Net Wrth categry. Nn-qualified and qualified assets are available during lng-term care by default. The Educatin Specific Accunts sectin n this tab is fr infrmatin purpses nly and cannt be mdified. 23

27 NaviPlan Premium Learning Guide: Set insurance gals Verify the data using stand-alne reprts The Plan Analysis Synpsis reprt prvides a cmplete verview f the plan including incmes, expenses, assets, liabilities, and strategies that have been entered. It prvides a basis fr cmparisn f plan alternatives and allws yu t verify the accuracy f the infrmatin. Figure 19: Plan Analysis Synpsis reprt (Reprts menu Summary Synpsis Reprt) 24

28 NaviPlan Premium Resurces The Life Insurance Cash Flw Single Year Details reprt is ideal t see what happens in the current year if the client r c-client dies. A full year s cash flw is still calculated as the client is assumed t be deceased at the end f the year. Figure 20: Life Insurance Cash Flw Single Year Details (Jim Dies) reprt fr the year in which Jim dies (Reprts menu Insurance Life Insurance Cash Flw Single Year Details if Jim Dies) Key pints Jim and Maria bth have incmes, because by default Jim dies at the end f the year in the analysis. Jim s wrk life insurance plicy is paid ut. 25

29 NaviPlan Premium Learning Guide: Set insurance gals Jim s estate must be settled. Lans are paid ff cmpletely. The remainder frm life insurance prceeds is invested in a hypthetical accunt earning the rate f return specified fr cash flw surpluses and liquidatins. Lking at the same reprt fr the fllwing year, we see quite a few changes resulting frm Jim s death. Figure 21: Life Insurance Cash Flw Single Year Details (Jim Dies) reprt fr the year fllwing Jim s death (Reprts menu Insurance Life Insurance Cash Flw Single Year Details if Jim Dies) Key pints Maria (the survivr) cntinues t wrk. Jim s incme has stpped. Invested Available Capital represents insurance prceeds that were invested in 2012 at Jim s death and are nw used t help pay expenses. Maria als earns investment incme based n the rate f return assigned n the Assumptin tab fr the insurance analysis. All investments are in Maria s name. 26

30 NaviPlan Premium Resurces Additinal changes can be seen in the Cash Outflws sectin f the reprt. Figure 22: Life Insurance Cash Flw Single Year Details (Jim Dies) reprt fr the year fllwing Jim s death (Reprts menu Insurance Life Insurance Cash Flw Single Year Details if Jim Dies) Key pints Lifestyle expenses are adjusted t reflect reduced expenses fr the surviving client and children. Savings are allcated t help fund Maria s retirement gal. 27

31 NaviPlan Premium Learning Guide: Set insurance gals Exercises The exercises in this mdule were created using the Jim and Maria Dixn client file. Befre starting the exercises, g t the Client Management sectin Client List categry Clients page, and then pen the Dixn, Jim & Maria client file. On the Plans page that pens, duplicate the plan named Base Plan, rename the duplicate with a meaningful name, and then use the duplicated plan t cmplete the fllwing exercises. Answers and step-by-step instructins t the exercise questins are prvided at the end f this learning guide. Befre prceeding with the exercises, fllw these steps: 1. G t the Plan Management sectin Mdules categry Mdules page. 2. Click the Select Mdules buttn. 3. Select the Disability Incme and Lng-term Care mdules. 4. Click OK. Exercise questins 1. With the Dixns net wrth, cash flw, and gal infrmatin already captured in the plan, what insurance analysis methd is apprpriate fr their survivr incme and disability incme analyses? Why? Circle ne: Gal and Expense Analysis r Incme Cverage Analysis. 2. The Dixns want t cver 80% f their current expenses shuld ne f them die, becme disabled, r enter lng-term care. Adjust each analysis t reflect this. 28

32 NaviPlan Premium Resurces 4. The Dixns have als expressed that shuld ne f them die, becme disabled, r enter lng-term care, they wuld sell their real estate rental prperty immediately. This wuld remve the burden f managing the prperty and the prceeds wuld help t cver additinal expenses. Hw wuld yu mdel the sale f the rental prperty in the plan? 5. In the event that either client is disabled, the Dixns wuld like t assume a $30,000 expense, allwing fr inflatin, t help pay fr any huse renvatins r ther immediate needs they may encunter as a result f the disability. Hw wuld yu mdel that expense in the Dixns plan? 6. What wuld the Dixns current-year cash flw lk like if Jim became disabled? Generate the Disability Insurance Cash Flw Single Year Details (Jim Disabled) reprt t find ut. Duplicate the reprt, and then click the Next Year buttn abve the reprt n the right side f the windw. Yu can easily see the effects f Jim s disability n the Dixns cash flw. When analyzing the reprt, keep the fllwing in mind: Reductin f incme and expenses. Liquidatin f real estate rental prperty. Insurance payut. Immediate lump sum needs. Cash flw balance at the end f the year. 7. T see whether the Dixns have adequate cverage fr the survivr incme, disability incme, r lng-term care analyses, g t the Results sectin Analyze Gals categry Scenaris page, and then under Current Plan, click the Calculate All buttn. 29

33 NaviPlan Premium Learning Guide: Set insurance gals Cnclusin Upn successful cmpletin f this mdule, yu are nw able t Describe the assumptins and analysis methds available fr determining insurance needs. Define survivr incme bjectives. Define disability incme bjectives. Define lng-term care bjectives. Verify the data using stand-alne reprts. 30

34 NaviPlan Premium Resurces Answers t exercise questins 1. The Gal and Expense Analysis insurance analysis methd is integrated with the plan and shuld nly be selected in a cmpleted plan. This is an ideal methd t use fr the Dixns situatin. 2. T ensure the plan reflects the apprpriate cverage amunts, yu wuld fllw these steps: a. G t the Set Gals sectin Survivr Incme/Disability Incme/Lng-term Care categries Client/C-client Objectives pages Onging Expenses/LTC Expenses tabs. b. In the Percentage f lifestyle and medical expenses t cver field, change the value t 80%. c. Ensure this is reflected fr all three insurance analyses and fr bth clients. 3. T mdel the sale f the rental prperty, yu wuld fllw these steps: a. G t the Set Gals sectin Survivr Incme/Disability Incme/Lng-term Care categries - Client/C-client Objectives pages Asset Availability tab. b. Select the Liquidate Immediately ptin fr the real estate rental prperty. c. Ensure this is reflected fr all three insurance analyses and fr bth clients. 31

35 NaviPlan Premium Learning Guide: Set insurance gals 4. T mdel a $30,000 inflated expense t pay fr the huse renvatins, yu wuld fllw these steps: a. G t the Set Gals sectin Disability Incme categry Client/C-client Objectives pages Lump Sum Needs tab. b. Click the Add Lump Sum Need buttn. c. In the Descriptin field, replace the text with Immediate Disability Needs. d. In the Amunt field, enter $30,

36 NaviPlan Premium Learning Guide: Set insurance gals 34