10.1 Determining Needs
To fully appreciate the purpose and function of insurance, understand that its roots lie in economics and the concept of the Human Life Value.
The first step in determining the needs of your client is to evaluate the financial needs of those left behind who depend on the insured should the insured die or become disabled. This concept is actually referred to as the "Needs Approach" (see 10.1.2).
The widow (or widower) must have a way to replace the lost income in order to support herself (or himself) and their dependents. Life insurance can fill this need. Let's look at some specific items to analyze when conducting your evaluation.
Final Expense Fund
- This is usually the first expense incurred; close out any last open medical bills and, of course, coverage for the funeral and such.
Housing Fund
- Even though the breadwinner is no longer alive, the mortgage still must be paid and rental payments still come due.
Education Fund
- College education costs are estimated to continue increasing at a rate of five to eight percent per year.
Monthly Income
- Bills must still be paid, groceries purchased, etc. If there is no "income," there can be no "outgo."
Emergency Fund
- Some expenses just can't be foreseen, so the surviving spouse should have a financial reserve available in case an emergency or additional crisis strikes.
Disability or Illness
- If the breadwinner becomes disabled or too ill to work, it can be devastating financially. Disability insurance in conjunction with life insurance might be considered, or life insurance under an accelerated death benefits provision.
Retirement Income
- Life insurance can be coordinated with Social Security benefits to afford an acceptable retirement plan.
