Question

The needs approach is widely used for determining the amount of life insurance to purchase.  In no than less than 200 words, describe the following needs for a typical family head:

a. Cash needs

b. Income needs

c. Special needs

Answer 1

Life insurance gives security to the family members after the death of the insured member by giving financial assistance to them. For purchasing life insurance, Needs approach is considered as the best method for determining the amount to be purchased. Below needs are considered in arriving at the total amount to be insured.

a. Cash needs:

Cash needs considers the immediate expenses required after the death of the insured individual. It considers burial expenses, tax liabilities and medical cost during the treatment of the individual. These are included in cash needs.

b. Income needs:

This depends on the income being earned by the insurance holder before death, with which the survival of the family is based upon. This by definition will differs from family to family. Surviving spouse income needs and children income needs are considered in this.

c. Special needs:

Different important events in life will fall under special needs. Expenses related to events like education, marriage, mortgage payment etc. needs to be considered under Special needs.