Chapter 1

Question 1

Needs Analysis

Answer 1

requires specific, detailed fact finding. General guidelines not useful, since needs will vary widely by family. Needs analysis composed of cash needs and income needs specific to each family.

Question 2

Multiple Income Approach

Answer 2

Does not take into account individual family accumulated assets, specific circumstances, goals and objectives or existing resources

Question 3

Human Life Value

Answer 3

• Earning capacity- highest at beginning of career, lowest at retirement (ZERO at the end of one’s working years). Economic value diminishes with time. Potential income converted to actual income.
• Based on character, health, training, experience, personality, judgment, initiative, and power of industry.
• Moral and legal obligation to provide protection.

Question 4

Needs

Answer 4

-Final expenses (Clean-up Fund)
-Emergency fund- 3-6 months of income

Question 5

FNA-Financial Needs Analysis

Answer 5

-Liquidating approach
-Each payment consists of principal and interest
-Fund will eventually be exhausted
-Danger is that survivor will outlive income

Question 6

CNA-Capital Needs Analysis

Answer 6

-Non-liquidating approach
-preserves the capital sum
=Benefit payments completely derived from investment income
-Investment fund not diminished
-Benefits should last indefinitely

Question 7

ECONOMIC BASES OF LIFE INSURANCE FOCUS POINTS

Answer 7

• Rules of thumb like multiples of income for life insurance amount needed do NOT consider assets, goals, or needs.
• An individual’s economic value calculation includes number of years of potential income. (Working Years)
• Life insurance for an emergency fund: review other sources of funds times number of months needed (generally 3-6 months or more).
• A clean-up fund includes estate administration costs.
• An income earner’s capacity to earn an income is affected by her/his power of industry, personality, judgment, initiative, training, experience, health, and character.