Life Insurance Analysis - RightCapital Help Center

RightCapital is designed to provide significant insights into a client's financial landscape to create a space where you, the advisor, can do financial planning just right. The Life Insurance Analysis is a dedicated module that considers the question: "What if a client or co-client were to pass away one year from now?"

The Life Insurance Analysis can be found within the Insurance > Life Insurance tab of each client plan:

Important Note: Joint vs. Single

The Life insurance analysis will work differently depending on whether the plan is joint, or for a single client. This article provides an overview of both- you can use the table of contents on the right side of the page to skip ahead to a certain secton.

Joint Life Insurance Analysis

Within joint plans, the Life Insurance Analysis will run a set of side-by-side projections: one for the client, and another for the co-client. Each projection is simulating a very specific what-if scenario:

"If the client / co-client passes away next year, will the surviving client run out of money before the end of their plan?"

Each projection considers the surviving client's remaining income and assets to determine whether or not they can make it to the end of their planning horizon without running out of assets. If either client runs out of money in their projection, a Protection Need will be calculated and displayed- this value represents the amount of insurance that would ensure the surviving client would not run out of money:

Pro-Tip: Inheriting Assets

You can adjust the percentage of assets that a surviving spouse will inherit within the Gear Icon > Settings > Account Assumptions section of the plan. This will impact the protection need generated for each client.

You can use the Action Items at the bottom of the page to adjust income, expenses, goals and more for each projection (more on this below). These projections include all of the same plan variables as the Retirement Analysis, with the following adjustments:

Any income, savings, expenses, or goals associated with the deceased are removed from the surviving client's projections
Any existing insurance that would be paid out is included. The death benefit received will be assumed to be invested with the same proposed asset allocation as their other invested assets.
Living expenses for the surviving clients are reduced (the % reduction is based on the "Expense adjustment upon the death of a co-client" setting in the Gear Icon > Settings > Other Assumptions tab)

Be aware of your Planning Method setting!

The Life Insurance Analysis projections are heavily reliant on cash flow data. It is recommended to use either the 'Cash Flow Based' or 'Modified Cash Flow Based' planning methods if you wish to use the Life Insurance module. The 'Goal Based' planning method is not recommended.

Summary Tab

The Summary tab provides clean, easy-to-understand visuals that allow you to compare the estimated protection need to any current or proposed insurance coverage:

Protection need: the amount of insurance that, if added to the surviving client's assets at the end of the first projection year, would ensure the surviving client does not run out of money before the end of the projection.

Current insurance: any insurance entered in the Net Worth section of the Profile, where the indicated client is the insured. Will enter the client's cash flow projections at the end of the first year.

Proposed insurance: any insurance entered in the 'Proposed additional life insurance' field within the Action Items below the graph.

Important Note: Protection Need

Please note that the protection need being calculated is not an exact amount of recommended insurance for each client. Rather, it is the minimum death benefit required to ensure that the client ends their life with at least $1 left to their name.

It is also important to remember that the protection need is an estimate based on the assumed plan variables for each projection (see 'Action Items' below).

Action Items

Fine-tuning income, expenses, goals, and other inputs for each surviving client is a critical step in performing an accurate life insurance analysis. Using the Action Items at the bottom of the screen, you can individually adjust plan variables and immediately see the impact of your changes on a client's protection need:

If you are familiar with the Action Items in the Retirement Analysis module, the functionality in the Life Insurance Analysis is very similar. The inputs and values entered into the Profile will be used as the baseline information for each insurance analysis. Use the slider bars or manually enter new values for each item, and then click the "Refresh" button in the lower right to update the analysis. The visible action items can be customized by clicking the "Edit" button, and then checking or unchecking inputs in the "Add or remove action items" area:

Important Note: Action Items

Any proposed action items that have been added in the Retirement > Analysis area will also appear in the Life Insurance Analysis. These items will be marked by a green dot for easy identification:

Much of the time, income, expenses, savings, and goals are entered into the Profile with the expectation that both clients will make it to the end of the plan projections. However, in the event of a premature death, many of these variables would likely change for the surviving client. For this reason, it is essential to review the action items to make sure that the protection need being calculated is based on sound, realistic data.

For example, if someone's spouse were to pass away prematurely, perhaps the surviving client would no longer pay for a child's college education. You can account for this by adding the college goal to the Action Items, and adjusting the cost in either scenario to see the impact:

Important Note: Action Items

Any changes made to the Action Items in the Life Insurance module will only impact the insurance projections. This will not impact the current or proposed plans in the Retirement Analysis section, or any other screen within RightCapital.

Client / Co-client Tabs

The two tabs labeled [Client name] and [Co-client name] will shine a spotlight on income and invested assets over the course of each projection. The tab labeled [Client name] illustrates the scenario in which the client passes away, and the co-client survives. Conversely, the tab labeled [Co-client name] illustrates the scenario in which the co-client passes away, and the client survives:

The income chart reflects the projected income in retirement for each scenario, broken down by income type. Any shortage is shown in red, and the total shortage is displayed to the right of the chart. If the total of the client's current and proposed insurance exceeds the insurance need, you will see no income shortage. This projection will include any proposed additional insurance that is entered within the Action Items.

You can also use the drop-down box to display a chart showing the surviving client's projected invested assets through retirement. The chart displayed in green shows the projection before including any proposed additional insurance; the chart in blue shows the projection after including the proposed additional insurance.

Important Note: PDF Report

When including the Life Insurance analysis in a client's PDF report, only the income chart will be included in the report. The invested assets chart will not be included.

Details tab

The Details tab is where you can find and analyze full cash flow details for each of the scenarios being projected in the Life Insurance analysis. Here you can view year-to-year cash inflows and outflows, ending account balances, and more:

The details tab functions in the same manner as the Retirement Cash Flows. You can use the drop-down box in the upper right-hand corner to switch between each scenario. There are several cash flow tables available here, including:

Cash flow summary: Highlights cash inflows, cash outflows, and net flows for each year of the projections.
Ending account balance: The end-of-year balances for each type of account within the projections.
Addition to accounts: All contributions (including planned savings, employer contributions, and savings to taxable accounts) to each type of account.
Required minimum distribution: Reflects the required distribution of assets from tax-deferred accounts into the taxable account when the client reaches RMD age.
Withdrawal from accounts: Reflects withdrawals from each account type to fund cash flow needs.
Net cash flows: Reflects the total of Addition to accounts, Required minimum distribution, and Withdrawal from accounts for each account type.

The changes that you've made within the Life Insurance Action Items will be reflected in these cash flow tables. Columns with underlined headers can be clicked into the "zoom in" and view more detailed cash flow information:

Single Life Insurance Analysis

If you are planning for a single client (no co-client), the Life Insurance Analysis will function differently. Because there is no "surviving client" to plan for, we will instead calculate a protection need based on specific goals and expenses within the plan:

This is a simplified version of the joint life insurance analysis, primarily focused on providing for a client's children and/or grandchildren. The protection need in this case will be comprised of any college goals, plus a monthly expense number that you can set for a specific dollar amount and duration. It will also factor in how a client's investments can help meet those needs, discounting the protection need by the rate of return on the client's current portfolio. The protection need can then be compared to a client's current life insurance coverage, as well as any proposed additional coverage.