How Much Life Insurance Is Needed For Capital Retention? 2/3

Capital Retention

Although I understand why they said what they did in 2009, as an insurance professional I was very offended by politicians, who have never had to make their living, speaking as if they understand about insurance brokers.

Granted, there are plenty of disreputable or untrained insurance agents in America.  They think that insurance sales is nothing more than a way to earn money.

However, the majority of insurance professionals I know are true professionals.  They know that what we, as agents, do is something of value.  When an individual deals with a subject that is foreign to them, they want, and deserve, straight answers from a professional that is in the best interests of the client and not the agent’s bank account.

In this series of posts on life insurance, I want to share some concepts that will allow you to prepare before you talk with your life insurance agent.  I started this series yesterday with “Life Insurance:  Not How Much But What Type.”

Unfortunately, most life insurance policies are still only available from insurance agents.  The information in these posts can help you decide what you want before you actually sit down with an insurance agent.

If you know before you call your insurance agent what you want, and don’t allow yourself to have your mind changed by a slick talking insurance agent, you will be able to have confidence that your insurance agent is working for your best interests and not for his own bank account.

Yesterday’s post was about how to determine how to decide how much income you want to replace to your loved one if you die early.

Today’s, and tomorrow’s, post will help you determine how much insurance you will need.

Today’s formula is about how you can calculate how much life insurance you need so that your family can replace your income, with no end.

The CAPITAL RETENTION strategy is the preferred strategy to use for people who want to guarantee their income as long as their spouse and children live.  Like most things in life, the CAPITAL RETENTION strategy has both pros and cons.


On the positive side of the ledger, the CAPITAL RETENTION strategy will guarantee a level income for loved ones as long as they live.

With a proper Trust (drawn up by a licensed attorney in your state) when the last child/spouse dies the original proceeds can either be divided among grandchildren or given to a charity.


On the negative side of the ledger is the cost.  The CAPITAL RETENTION strategy requires more cash than the CAPITAL DEPLETION strategy that I will discuss tomorrow.


The formula in the graphic above will allow you to calculate how much term life insurance you need.  Before you do the calculations for yourself, you will need to ask yourself the following questions.

  • How much income do I really want to replace?
  • What do I want done with the money after my immediate family are gone?
  • What long-term interest rate would my heirs be able to get?
  • Should I engage an attorney to draw up a trust or rely only on the life insurance company?
  • Should I include Social Security survivor’s benefits in my calculations?


The CAPITAL RETENTION strategy for replacing income in the event of the death of a wage earner can be more expensive that other strategies.  However, if your goal is to provide a stream of income for the unknown life-span of your spouse and/or children, it is the best method available.

CAPITAL RETENTION, although more expensive than CAPITAL DEPLETION,  is better than, “Some life insurance is better than none.”

More importantly, if your instincts tell you that you need life insurance but you are not certain how much, or what type, you need, by knowing what strategy you want to use before you meet with an insurance agent, you can protect yourself from those insurance agents who are more sales-people than insurance professionals.

Term Banner 1