How do I remove the life insurance cost in the reporting?

While I understand the purpose/suggestion of life insurance, can I remove it from my annual cost? Perhaps the SW should just suggest the amount and the user can add the specific cost. Having the amount in the reporting is just confusing.

Comments

dan royer's picture

The life insurance could be removed by indicating in the Estate area that the survivor should have a lower standard of living. Of course the you'd have to enter the insurance premiums as special expenditures and you'd no longer see when you needed the insurance. In short, there's no way to remove just the annual cost without also removing the recommendation as well.

I concur that it would be nice if ESP reported a suggested amount of life insurance and allowed an option to include the cost, or not. I have existing term policies that are more than adequate for ESP's recommendations and the cost is far lower than that estimated by ESP.

I know that the cost of insurance is included as a fixed expense and that removing it from the calculations has a circular formula effect on LSPA. But if it recommends less than I have and I elect to keep it, I would add my actual premiums as special expenses in the years that I plan to keep the policy in effect. That way I'd know whether my current insurance is adequate, as calculated by ESP, and the cost of insurance would be included in determining my discretionary spending.

Thanks

Hi Chris,

It's simple to remove the life insurance (and premiums) from the results. Go to the "Estate" tab and reduce the "Desired percentage change in survivors' living standard". You can set different levels for each spouse. Experiment a few times and you can zero in on the exact percentage that leads to no life insurance in the reports. You may want to try reducing the living standard by 10%, 20%, 30%, etc. to narrow this down more quickly. Some people may experience a huge decline while others are minimal.

Of course, this isn't recommended because of the negative impact.

Best,
Brian

Brian, I know I can do that but it's certainly not desirable. I appreciate the life insurance recommendations by ESP. It's the cost estimates I object to, and wish I could control.

I think this is doable.

Run the original reports to determine the amount of LI needed. Then eliminate the need for LI with the process above. Finally, input your own special expenditures for your specific LI premiums (assumed to be close to recommended levels), and you should be covered although perhaps with minor issues. Of course, this could trigger the need for additional LI, but that would depend on the specific profile and should be a secondary effect.

Dan - is there a source for the specific LI premium recommendations that you can share? I think I saw this ages ago on the old forum, but am not certain. The guide says, "ESPlanner uses prevailing lowest-cost age- and sex-specific term life insurance premium rates plus an assumed 15 percent load factor (since users may not have access to the lowest rates) in determining life insurance premium payments. If you feel the program’s calculated premiums are too high or too low, you can adjust the load factor under Economics Assumptions."

By checking with some leading LI providers a user could probably determine this with enough effort.

Best,
Brian

dan royer's picture

It's been perhaps five years or so since those costs were updated. They used to be much higher, but I did some research using Banner Ins. rates, which were public at the time (may still be) and they were very competitive rates. We then used the kind of middle rates. Perhaps costs have gone down quite a bit since then. Perhaps we should look at those again.

If there is a way to update these more frequently, that would be great. I assumed these were updated somewhat regularly like the tax tables or MC return data. For users with LI recommended this could make an important difference.

Best,
Brian

If I can control life insurance premiums that would help. One of my reports suggests ~$240K life insurance on my wife and estimates the cost at $744. Even with the load set to 0 it's still $625. The actual cost is about $370. Realistically that $370 difference isn't material but being able to record actual premiums (if I chose to do so) would be better.

dan royer's picture

I sent the folks here a note to ask about this. We should update those tables at the least. But I'm asking them if the adjustment for load on life insurance can just be changed to "adjustment for cost" and then allow that adjustment to really scale things a lot up or down so that with a few trial and errors a user could get this really close to his or her actual costs.

Good idea, Dan. If -100% is within the allowed range for adjustment we could turn it off completely.

I second this. If there was a lever to reduce LI all the way to zero, that would be nice. The default should still have LI on at the updated level.

Best,
Brian

dan royer's picture

I didn't hear back from them yet--and I don't know the code behind this--but my thought was that that "load on life insurance" could be "relative cost of life insurance" and then just let it go into negative numbers instead of stopping at 0.

I guess the internal mechanism doesn't matter from the user perspective as long as the user can adjust the recommended LI total premiums as needed. If this step is taken, the option should be there to set premiums down to zero dollars.

Best,
Brian

Bumping this thread to add my vote to have the option to eliminate life insurance from the calculations. One additional point about the current way the program handles this - most policyholders don't typically get to adjust their coverage up and down every year, so having the coverage fluctuate yearly adds to the noise. Term insurance is most commonly 10 years. (Although it can be one year, that's typically pretty expensive and might require a medical exam so it's pretty rare).

dan royer's picture

Right. But the program is not giving "rule of thumb" insurance recommendations; instead it's analyzing what's needed each year. People wouldn't go for the "fudge" on that number.

I agree that the recommended insurance should be exactly the present value required to preserve the LSPA for the surviving partner but would rather control the cost of that insurance. I can use the recommended amount to guide my insurance purchase but could then set ESP's estimated cost to 0 and add a fixed special expense reflecting the actual expense for the amount of insurance I chose to buy.

The result would be that ESP applies the actual cost of my insurance choices to my standard of living. As long as the resulting recommended amount of insurance is at or near my actual amount of insurance, I'm good.

Chris
A user

dan royer's picture

I agree too . . I've been trying to get this on the revision agenda. I'll have to check again to see if such a feature is forthcoming.

I have life insurance and my employer pays the full cost. But if I put the insurance amount into the program, it automatically calculates a premium. I have the insurance, and I do *not* have a premium! Can the program deal with this?

dan royer's picture

We're working on an option to dial down the cost to zero. Of course you can also just offset it with special receipts in the same amount of the costs but that can be a little tedious since the amounts change with every scenario. Putting in Life Insurance should not change the premium--that's just to compare what you have with what you should have in the current year report.

I'm a fee-only planner, and my state (Oregon) does not allow me to make ANY insurance recommendation with out an insurance license - which I have no intention of getting. I can delete the recommended insurance column on the Annual sheet, but as discussed above, can't get the ESP estimated cost off of the Spending sheet. We are now 30 months after the last comment and still no option to do this. Can we look into it again?

dan royer's picture

Hi David,

That feature to dial down life insurance premiums to -100% or to simply not calculate life insurance was built into MaxiFi Planner. I don't believe there's a plan to include this feature in ESPlanner given that ESPlanner is being phased out. MaxiFi now includes almost all of the features of ESPlanner and a good number of features that ESPlanner does not have. MaxiFI planner will also include development work going forward to facilitate the work of FPs like yourself.

Note that you can, in ESPlanner, indicate in the Estate area that you want the survivor to have a lower living standard. This will often eliminate the need for life insurance since the requirement for the per-adult equivalent living standard is thus removed.

I'd be happy to discuss and help you get transitioned over to MaxiFi Planner Professional. https://maxifi.com

Dan

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