Determining Amount of Personal Life Insurance Needed

Question 1

Two of the approaches used to determine the need and amount of life insurance

Answer 1

human life value and needs analysis.

Question 2

human life value

Answer 2

This approach is a measure of the projected future earnings of a person at risk in the event of their premature death. The objective is to provide the proper amount of coverage, as determined by the value of the individual to their dependents, using the rate of inflation and the individual’s:
Age and gender
Occupation
Annual wage and employment benefits
Planned retirement age

Question 3

Needs Analysis

Answer 3

This approach determines a need for coverage upon the premature death of an individual. It always assumes the death of the individual to be immediate and factors the following items into arriving at the proper amount of coverage needed:
Calculate all financial needs caused by an immediate death, including debts, medical bills, and final expenses
Provide lifetime income to the spouse
Pay off a mortgage or other debt
Provide funds for children’s education
An Emergency Reserve Fund or lump-sum needs may be part of the calculation to provide for unexpected emergencies the family might encounter immediately after the death of the insured
Subtracts any assets available to fund financial needs after death

Question 4

Capital Liquidation income obj.

Answer 4

Assumes both principal (capital) and interest are liquidated over the relevant time period to provide the required income for the dependents. When income is paid out under capital liquidation the account balance will decrease as each payment is distributed.

Question 5

Capital Retention/Conservation – income obj

Answer 5

Assumes the desired income will be generated by the interest only, thus retaining or conserving the principal