Q - When I run the need analyser (in this case the life insurance need analyser) the analyser is returning a "solution error". What could be the case?
A - Solution errors occur when the simulation is unable to resolve the calculation and provide a solution. Solution errors have two possible causes.
1. Liquidation limits, set by the user, that prohibit the software from drawing funds when needed from liquid assets can cause solution errors. This is not very common but note that setting withdrawal limits on an account could certainly skew results. For example, your client has £2,000,000 in a bond but the software cannot make withdrawals from it because you have set, on the Liquidation Limits / Planned Withdrawals panel, the software to disallow withdrawals from that bond. Were this the case, the simulation result could be £2,000,000 higher than it should be because those funds are effectively taken out of the picture.
2. You have selected a preferred payment source for one or more expenses and it is set to be the only allowed source of payment for that expense. This this option should be used VERY sparingly because it can interfere with simulations. This is the most common cause for solution errors.
Note: If artificial shortfalls already exist in the cash flow prior to running a need analysis, they will be indicated by red above the black need line. This indicates that a shortfall is occurring even though adequate funds are available in the plan.
When run, the life insurance needs analyser simply places a lump sum payout into the survivor's default cash account to test whether it could be drawn down in subsequent years in order to stave off any potential shortfalls. Once an adequate balance is found, the analyser shows the amount of funding needed to provide you an estimate of the additional your client might need were he or she to die prematurely.
When an optional preferred expense payment source (an investment, savings account, or income) is selected for an expense, the software will go first to that source to attempt to pay the expense. If the preferred payment source is found to have insufficient funds to pay the expense, the software will normally draw from other sources (income and liquid assets) in order to pay the expense.
The software will go first to the preferred payment source but could then draw on other sources if needed. However, if you select the option to "Only Allow Preferred Source to Pay Expense", you are prohibiting the software from using any other payment source.
The software is quite literal about this setting. This setting is great for testing whether a particular account is being adequately funded to pay a particular expense, but we recommend using it only in scenarios designed to test for that funding. Otherwise, I recommend leaving it unticked, but use preferred payment sources all you like.
Since the need analyser is not designed to make deposits into this payment source, it goes underfunded after the client's death causing shortfalls that the need analyser is unable to resolve.
To allow the need analyser to run properly, go to the appropriate Expense screen, select the expense in the ledger, expand Advanced Settings, select Expense Payment Source and deselect "Only Allow Preferred Source to Pay Expense".
Also note that preferred payment sources can be viewed on the Let’s See chart details panel, Expenses tab, by moving your cursor over the individual expenses.
3. You have a sweep balance rule set for the default cash accounts that either sweeps funds into a type of account that the software will not take ad hoc withdrawals from (trusts, money purchases, VCTs, EISs, DGTs) or into an account on which you have set a liquidation limit, disallowing withdrawals.
If you think this might be the case, go to the Savings screen and check the default cash accounts (e.g. Susan's Cash). Expand Advanced Settings > Annually Sweep Balance to Other Accounts. Check if the first account in the list of target accounts for the sweep is a trust, money purchase, VCT, EIS, or DGT or go to the target account and check its Advanced Settings > Liquidation Limits and Planned Withdrawals panel. Remove any liquidation limits that may be preventing the funds paid into cash and subsequently into this account or if sweeps are being made into a type of account that does not allow ad hoc withdrawals, remove the account from the Advanced Settings > Annually Sweep Balance to Other Accounts panel.