You also get the joy of a bit of a sales pitch on why I love life insurance planning so much. It’s truly an incredible financial product.
Life insurance is founded on the economic value that each of us provide to others and on our moral obligation to provide for our dependents.
Because each of us has an economic value that can be estimated, we can come up with some formulas to understand how much life insurance is appropriate.
The three major approaches to determining an appropriate amount of life insurance are:
- Human life value approach
- Needs analysis approach
- Rule of thumb approach (most popular is the multiple of income approach)
The best of these methods is the needs analysis approach. It balances the need for precision and the need for simplicity quite effectively.
Life insurance can have many uses for individuals and families:
- Immediate funds:
- Cash to meet daily living needs
- Cash to pay expenses associated with death
- Cash for emergencies, repairs, or replacements
- Ongoing income:
- Spouse
- Children
- Parents
- Nondependents
- Funds to pay debts
- Funds for death taxes
- Funds for dependents’ education
- Funds for trusts
- Funds for charities
- Funds for gifts
- Funds to supplement retirement income
- Funds for home health care or nursing home care
- Funds to transfer assets to a younger generation
- Funds to discreetly provide for confidential needs
Enjoy the show!
Joshua
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What I like the most about life insurance is the feeling that whatever happen, my wife will be okay.
I became interested in life insurance after reading Nelson Nash’s book about using a dividend paying whole life insurance provided by a mutual company for the “living benefit” of this type of contract. I realized that my need for financing is much greater than my need for death benefit. This type of contract, when properly structure, allow me build my own financing vehicle outside of the banking system and avoid in part the opportunity cost of using cash or traditional financing from the bank. All the while still building a massive amount of death benefit as a side effect.
I love your show, I listen to it many times a week. Keep rocking this world Joshua.
PS: I am in marketing and you’ve done a great job with the website. I would suggest, to build your email list, to give away something a little bit more enticing than an inbox notification. Maybe some spreadsheet for financial/cashflow statements or a quiz?
I want to echo the first comment. I listened to the whole show and was really hoping you’d mention more of the living benefit/bank on yourself type ideas that Nelson Nash popularized. It makes life insurance even more attractive while you are alive!
I’d guess Joshua is being methodical about this and taking it one step at a time, so this episode was just the first of what will probably be multiple episodes on this subject. I know where the debate really heats up is when you move past term life insurance to the other stuff, so I’m looking forward to him digging into that!
Joshua, this is a great series! I will make sure I listen to all the episodes covering life insurance. I wish people were this methodical in my country.