MaxiFi adjusts its life insurance recommendations to make sure that your survivor has enough funds at each of your possible ages of death to cover bequests and also ensure the same per-adult living standard for your survivors as he or she had with both adults alive. If you indicate in the bequests panel that you want your survivor to have a 30% higher living standard, you may see that your term life insurance recommendation goes up. On other hand, if you were to indicate the preference for a survivor's living standard to go down in the event of your death, you may see annual life insurance recommendations go lower.
MaxiFi is not simply using a rule of thumb or conventional recommendation for life insurance. It is looking at each year and evaluating the impact on the survivor's planning model and calculating how much extra funding would be needed (if any) to ensure that the household discretionary spending is at least as high as it was before the death. Because the funding needed varies from year to year, the life insurance needs vary from year to year. In some cases, the survivor's new living standard may involve borrowing constraint but either way, the lifetime living standard of the survivor will be equivalent as a survivor to what it was before the death.
In specifying special bequests, bear in mind that MaxiFi makes its saving and insurance recommendations in light of the need to provide for the living expenses of children through age 18. Also bear in mind that MaxiFi automatically takes into account the need of survivors to pay for special expenditures. Hence, there is no need to specify a special bequest to fund those contingent special expenditures that are already entered.
Also note that in specifying special bequests, you are telling MaxiFi that you want to make these bequests at whatever age the household head or spouse/partner dies. And the program adjusts its life insurance recommendations to make sure that your families have enough funds at each of your possible ages of death to cover these bequests and also ensure the same living standard for your survivors. If you want to provide money to particular individuals (like your children), but only when you reach a particular age, you should treat that gift as a special expenditure and enter it in the Special Folder.
The face value of a life insurance policy refers to the amount of money the policy will pay out in the case of death of the insured. Whole life insurance policies combine two elements—the purchase of life insurance and saving. The cash value of a whole life policy refers to the accumulated amount of saving that has occurred up to the current date through the policy. It’s referred to as “cash value” because it represents the amount of money the policy owner can obtain by terminating or “cashing out” the policy.
Since the cash value of life insurance policies represent one of your assets, you may want to include the cash value of your life insurance in regular assets.
Since the death benefit is a special receipt, you would enter that as a special receipt for the first year of the survivor or in other words in the first year after the death of the first spouse. That is typically entered as $x in "nominal" dollars for that future year. The person scheduled in your model to die first of course will never receive a death benefit.
How to adjust life insurance settings
MaxiFi's life insurance recommendations and corresponding premium calculations are shown in the Life Insurance Suggestions report.
As noted above, the annual amount needed and the premium will change from year to year because, in a pure mathematical sense, a different dollar amount of funding is needed in each year to insure that the survivor does not experience a lower per-adult living standard that he or she had before the spouse died. However, term life insurance is typically purchased in set amounts for a period or term, and your premiums thus may not align perfectly with the standard rate calculation provided by MaxiFi.
One simple solution for this discrepancy between what you actually pay and what MaxiFi's calculated premium is to set the MaxiFi rate adjustment to -100% as seen in the screenshot below. This change will create a $0 premium and allow you to enter your actual annual premiums as a series of special expenses. With this approach, you will still see the annual term life calculation, but the premiums in this report will be $0. Your actual premiums will be shown in the Spending Overview report in the Other column. If an employer is paying the premiums, then of course there's no need to enter premiums as special expenses.
Another approach is to use the setting in this panel (Settings > Other) to tell MaxiFi not to calculate life insurance needs after a certain age. With this approach, you will not see life insurance recommendations (or premiums) after the age you set.