10.1.2 The Needs Approach
The Needs Approach evaluates and determines how much money the family will need to continue living in a comfortable lifestyle should the breadwinner of the family die. This approach considers families' needs if either spouse should die or become disabled. Assets and other sources of income (Social Security, pension plans, investments, etc.) must be counted. These items can reduce the face amount of insurance needed.
Hank and Jerry work together and are good friends. Hank climbed the corporate ladder just as Jerry did but never invested any of his earnings. They both devote $50,000 a year to their families. Jerry started making investments right away and now his family enjoys paid dividends of $15,000 a year, whereas Hank did not make any investments. Assuming their lifestyles are comparable and all other factors are equal, obviously Jerry's family will not need quite as much in life insurance benefits as Hank's family will.
The Needs Approach also takes into consideration any future college or higher education expenses. Even though individual college institutions vary in costs, the cost of any college education overall has risen continuously and steadily.
