Here is another approach to life sum insured calculation. I quite like the cut-to-the-chase simplicity of it, and the recognition of the practical implication of a low inflation/low return environment – the discount to the lump sum required to provide an income is not so big these days.
What does bother me is the focus. Life, life, life. Where is TPD, IP, and most crucially: Trauma. While setting IP sums insured is relatively straightforward given the twin caps of insurer maximum and client budget, setting trauma sums insured is a lot harder to manage. The 'buy as much as you can afford' argument runs into too much trouble, too quickly: what you can afford is shaped by the argument you make for having it, which comes back to the hunt for a simple, yet strong, basis for how much you need.
Recently one adviser said that in discussion with an oncologist they felt that it took two years in more than 90% of cases for the client to either recover or to progress to a terminal stage with most serious cancers – which form the basis for between 40% and 65% of all trauma claims. That seems like a good place to start, and the way to approach the client? "What would you like to be able to do during those two years? How much would that cost?"