Needs analysis focus: what data do you need?

On this side of the needs analysis, we probably collect too much information, and sometimes end up trying to be too specific. But there is another category of information – the assumptions for modelling – which we probably use too little and could be much better tested.

For us the key (non-client) data elements and their associated sources are as follows:

1. Taxation brackets – a good tax estimator is needed to work out the impact on claims values to arrive at the in-the-hand levels of cover.
2. Social welfare benefit levels – these set a floor at which private cover may not be necessary. Some help is available to even wealthier clients, although it is perfectly reasonable to ignore welfare assistance if your client would prefer to do so.
3. Funeral costs – just keeping track of some indicative funeral costs is well worthwhile as a contributor to your overall build-up of the life cover figure.
4. Age-adjusted life expectancy – helpful for a good conversation about risk, and vital when you wish to discuss drawdown from an invested fund for the life of the survivor, while allowing for consuming some capital.
5. Appropriate discount rates – this has been tricky in the current environment, but will get easier as interest rates return to moving between historical norms. Selection of discount rate is central to working out the capital required in several situations. Longer-run averages or forecast averages are probably wise right now.
6. Income inflation – how fast will incomes rise? Not fast enough for most people! But alongside inflation you may want to consider how the income from your insurance package may fare in a higher inflation world.
7. Cost price inflation, both current and expected – necessary for the reasons above.
8. Expected return on investment – vital for the estimates of lump sums required to fund an income. Once again, a longer-run or forecast return is probably required right now.
9. Age of independence, retirement, and of loss of independence – will your kids be independent at 18? 21? 25? That age sets a time horizon to plan for claim proceeds to last. In modelling a claim scenario will your survivor retire at 60? 65? Or 70? Even 75 is possible. With more people working in some capacity past age 65 and generally longer lives, it is worth considering age 70 as standard for most class one and two occupations.
10. Childcare costs – if a surviving partner in a household with kids wants to continue working, then allowance must be made for childcare costs.