1. How Much Life Insurance Do You Need?
by Glenn S. Daily (2000)
2. How and When to Purchase Low-Cost Term Life Insurance
by Peter Katt (1998)
3. Human Capital, Asset Allocation, and Life Insurance
by Ibbotson, Roger G., Chen, Peng, Milevsky, M.A. and Zhu, Xingnong (2005)
Financial planners and advisors have recently started to recognize that human capital must be taken into account when building optimal portfolios for individual investors. But human capital is not just another pre-endowed asset class that must be included as part of the portfolio frontier. An investor's human capital contains a unique mortality risk, which is the loss of all future income and wages in the unfortunate event of premature death. However, life insurance in its various guises and incarnations can hedge against this mortality risk. Thus, human capital affects both the optimal asset allocation and the optimal demand for life insurance. Yet historically, asset allocation and life insurance decisions have consistently been analyzed separately both in theory and practice. In this paper, we develop a unified framework based on human capital in order to enable individual investors to make both decisions jointly. We investigate the impact of the magnitude of human capital, its volatility, and its correlation with other assets as well as bequest preferences and subjective survival probabilities on the optimal portfolio of life insurance and traditional asset classes. We do this through five case studies that implement our model. Indeed, our analysis validates some intuitive rules of thumb but provides additional results that are not immediately obvious.
A fuller version of this paper is also available: link
4. The Adequacy of Life Insurance
by Gokhale, Jagadeesh and Kotlikoff, Laurence J., (July 2002). TIAA-CREF Institute, Working Paper No. RD72
In this paper, we use an economic approach to determine households' life insurance needs. In the economic approach, life insurance needs and spending targets are simultaneously determined by smoothing households' living standards over their life cycles and ensuring comparable living standards for potential survivors. We demonstrate that life insurance recommendations provided by the economic approach are considerably different from those provided by the conventional approach. When comparing recommended with actual life insurance holdings, we find that under-insurance is widespread among secondary earners in married couples. We also identify a systematic gender bias: for any given level of financial vulnerability, couples provide significantly more protection for wives than for husbands.
5. Life Insurance Coverage: How Much Is The Right Amount?
by Claude C. Lilly, University of North Carolina at Charlotte and TIAA-CREF Institute Fellow, March 15, 2006
A fundamental part of risk management for individuals, like companies, is to preserve and protect assets. For the individual, the greatest asset frequently is her or his earning capacity. The death of an individual results in the loss of this asset. Life insurance is a risk management tool available to protect against this loss.
This Trends and Issues report focuses on two themes. The first and most important is a general process for examining how an individual should determine the amount of life insurance coverage necessary. The second is an examination of the environment that affects the process.
Estate planning models can provide an economic framework for determining the resources necessary to meet estate planning needs. Life insurance is a key resource in the estate planning process. Ascertaining the amount of life insurance necessary, like the estate planning process, should be done on a continual basis. The amount of coverage should be re-evaluated every time there is an important change in an individual’s environment. There are three factors that affect an individual’s environment: personal factors, economic factors and social factors. There often is an overlap between these sets of factors.
How much life insurance should an individual purchase? The answer is “The amount of coverage needed is not constant.” It varies over time, sometimes significantly. It is always equal to the difference between an individual’s goals and an individual’s resources. While models may include many of the concepts in this paper, it should be noted that an individual should always rely on their own analysis. The key to determining the amount of insurance is continually reviewing goals and resources. By doing this, a consumer reduces the impact of changes in societal, economic and personal factors.
6. Fee-only Planners Informational Websites:Glenn Daily Com.Peter Katt: ArticlesPeter Katt: Life Insurance Perspectives
7. AAII recommended websites:Insurance.com
What We Like: Numerous solid explanatory articles focus on consumer needs. Includes FAQs and a life insurance calculator. Quote search engine provided by ReliaQuote gives short policy descriptions and ratings from A.M. Best and S&P. Offers e-mail newsletter.
What We Dislike: List of articles not organized in any fashion and no search tool. very little on annuities. Scant policy details given in quote comparison engine.
What We Like: Very basic educational articles cover a range of insurance issues and news reports; separate area for annuities education. Interactive tools help you estimate your life insurance needs and explain the tax consequences of actions such as surrenders, loans, and early payouts. Insurance Company Guide gives S&P insurer profile, which includes ratings history from A.M. Best, S&P, Moody's, Fitch, and Weiss. Offers e-mail newsletter.
What We Dislike: Home page too focused on promoting the on-line purchase of insurance.