Financial Needs Analysis

The Importance Of a Financial Needs Analysis

A Financial Needs Analysis is used to analyze your current financial situation, your future financial needs and goals and what is needed in order for you to reach these goals.

A financial advisor who gives financial advice without doing a financial needs analysis, is like a doctor who does a diagnosis upon the first handshake!

Financial Needs Formula

Utilize this general formula as a reference to determine your Insurance needs. Essentially, you will take your financial obligations and subtract the liquid assets to calculate your target amount.

  • Financial Obligations = Annual salary + mortgage balance + other debts + future needs like college and funeral costs.
  • Then, subtract liquid assets such as existing college funds, savings, and current life insurance.


Laying The Foundation

The Purpose Of a Financial Needs Analysis

A Financial Needs Analysis gathers all pertinent information on yourself and/or your spouse, including: Age, Health, Financial Objectives, Risk Tolerance, Employment Status, Assets and Liabilities, Cash Flow and Income, Life Insurance, Beneficiaries, Trusts, and Special Situations.

With this information, a qualified financial advisor can now work with you to make a proper assessment of your overall financial situation. When finished, a personalized plan will be put in place to insure your financial security and a comfortable retirement.

Financial Needs Analysis & Insurance

Determine How Much Insurance Is Needed With a Financial Needs Analysis

A Financial Needs Analysis is commonly used as a needs-based financial modeling tool designed to easily help you establish how much insurance is needed. Our powerful needs analysis concept gives you a clear understanding of your financial situation by presenting complex information in easy-to-understand charts and graphs. Needs Analysis allows you to revise numbers on the fly, illustrating recommendations.
Below are a few concepts to help evaluate life and business situations to determine how much insurance is needed.

Basic Life Insurance Needs evaluate 3 “income needs” periods—the dependency period (until the youngest child
turns 16), the pre-retirement “blackout” period and the retirement period.

The Education Funding concept determines the amount necessary to send up to eight children to college. Tuition costs for nearly 3,400 U.S. and Canadian colleges—plus estimated room and board costs—are preloaded into the system. This concept compares the amount needed to any existing savings plan and illustrates both annual and lumpsum funding solutions.

Disability products offers gap coverage in your health care portfolios; protection for your most valuable asset, income; the opportunity for cost of living increases to cover inflation; insurance for a probability that’s more likely than premature death. The Disability Income concept lets you determine appropriate disability income coverage amounts.

The Financial Inventory concept provides a snapshot of your current financial position in terms of cash flow and net worth. This analysis lets you find the money to fund financial products. Since data flows from concept to
concept, conducting an initial financial inventory for each client facilitates the selling of most other concepts as well.

The Wealth Accumulation Concept helps on aspects of savings such as timing, risk, growth and tax-advantaged investing. This simple, effective calculator illustrates what sums are needed to obtain a desired
future value, what a regular savings plan will amount to in the future and the advantages of tax-deferred investing.

Key Person Valuation provides three methods for determining the possible value of a key person and then the average value.

The Mortgage Analysis concept is the first step in providing a solution to a mortgage protection need. This tool illustrates the alternatives to life insurance and logically leads into the Mortgage Assurance concept.

In Closing

A Financial Needs Analysis needs to be done on a regular basis, particularly when circumstances change such as not having a Financial Needs Analysis conducted in two or more years, marriage, when you have children, when you get divorced, a loss of a spouse, when planning to retire, or when you have started your own practice or acquired a practice.


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