This module focuses on quantifying the client’s life insurance needs based on established financial planning and risk management assessments. It evaluates existing and proposed insurances to meet these needs. It presents in detail methods for determining the amount of insurance a client needs, along with discussion and a comparison of alternate approaches. It also focuses on the use of time value of money principles applied to life insurance needs.

Determining how much insurance clients need in order to meet their goals is one basic function of a financial planner. Many clients do not want to focus on life insurance needs because it requires facing one’s mortality. For a client to be willing to purchase a recommended amount of insurance, they must be comfortable that the amount recommended is appropriate. Learning Objectives (LOs) 6-1 and 6-2 focus on the process of making an insurance needs determination that meets the client’s needs. LO 6-3 focuses on the process of identifying the type of policy or policies that will best meet the needs of a specific client.

Each form of insurance has a unique combination of characteristics while riders add additional flexibility. A planner needs to be familiar with these characteristics in order to recommend appropriate forms of insurance, the best meet the client’s situation. The evaluation process that is undertaken to determine which company’s insurance policy best meets the needs of a client, as well as whether an existing policy should be retained, is covered in LOs 6-4 and 6-5. Making these recommendations is not an exact science, but there are reasonable approaches that a financial planner may take.

The selection of the appropriate type of insurance—another topic in this module—is not a scientific process. You will be given selection criteria and some methods that will help you make assessments, decisions, and recommendations.

This module will not make you an expert, but will provide you with some valuable insights. In some cases, even though rules of thumb are generally not recommended in the financial planning process, their use may yield even more viable recommendations than scientific objective analysis. Remember, there are times when financial planning is as much an art as it is a science. The module will also introduce you to issues surrounding the replacement of existing insurance, which isn’t as simple as just finding a lower premium.

Life insurance should be an essential part of any client’s financial portfolio. If the client were to die too soon, life insurance can provide much-needed resources for the surviving family members. For clients who beat the longevity odds, annuities can also be an integral part of a financial and risk management plan to create a secure base income that will last their entire lives.

The primary purposes of life insurance and annuities are, in fact, two sides of the same coin. Life insurance pays the beneficiaries when the insured dies. Annuities pay while the annuitant is alive. This module will cover how to define the life insurance needs, but first you will learn about the various products and their structure. Many clients will already have some coverage that must be understood before an accurate analysis can occur. A financial planner first identifies financial risk exposures facing a client upon their death, then analyzes the client’s present coverage and resources. This analysis allows the planner to also determine how well the existing coverage fits into the risk management plan.

To acquire the skills necessary to accomplish this task, a planner must learn basic life insurance policy and annuity features, provisions, and riders. Planners will need to help clients decide on dividend options, choose appropriate riders, and guide beneficiaries through their options upon death of the insured.

Part of this module gives you pointers on how to evaluate insurance proposals. This is more important than ever because of changes that have been made in insurance products in the last several decades. Because of heightened consumer awareness, companies have developed products that are more responsive to the economic climate. However, many of these products do not have the guarantees they once had. A thorough grasp of insurance illustrations is essential. Related to this understanding of illustrations is a clear comprehension of life insurance pricing factors. This module also introduces these factors and explains how they interact with one another.

Finally, there are times when an individual will need to change or utilize their policy differently than their original intent. A terminally ill person may need extra money to pay medical bills or simply to maintain their dignity in the face of the inevitable and unrelenting advance of their illness. Many companies have added accelerated death benefit options, but if this is not available and other options are exhausted, viatication may be an answer. The concept of viatication is introduced and examined in this module. A terminally ill person who owns a life insurance policy may be able to sell it at a discount to policy face value. Finally, annuities have exploded in the marketplace as longevity is increasing and people look to create more certainty that they will not outlive their money. A high-level overview of annuities is provided.

About the Author

David Mannaioni, CFP®, MPASSM is a professor at the College for Financial Planning. Utilizing his 30+ years of experience in the financial services industry, David also maintains a financial planning practice where he works with his clients in all areas of financial planning. In addition to his certifications, David holds life and health insurance licenses in several states, as well as the Series 6, Series 7, and Series 63 registrations with FINRA. You can contact David at

Complexity Level: Advanced