What are the 2 basic approaches used to determine the dollar amount of life insurance needed?
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journal article Theoretical Approaches to Taxing Life Insurance Companies for Federal Income Tax PurposesThe Journal of Insurance Vol. 24, No. 2 (Nov., 1957) , pp. 56-70 (15 pages) Published By: American Risk and Insurance Association https://doi.org/10.2307/250232 https://www.jstor.org/stable/250232 Read and download Log in through your school or library Alternate access options For independent researchers Read Online Read 100 articles/month free Subscribe to JPASS Unlimited reading + 10 downloads Purchase article $9.00 - Download now and later Publisher Information The American Risk and Insurance Association (ARIA) is a worldwide group of academic, professional, and regulatory leaders in insurance, risk management, and related areas, joined together to advance the study and understanding of the field. Founded in 1932, ARIA emphasizes research relevant to the operational concerns and functions of insurance and risk management professionals and provides resources, information, and support on important insurance and risk management issues. Two main goals of the organization are 1) to expand and improve academic instruction of risk management and insurance, and, 2) to encourage research on all significant aspects of risk management and insurance. Rights & Usage This item is part of a JSTOR Collection. There are three common ways to determine a client’s life insurance needs: Multiple-of-income approach, human life value approach, and capital needs analysis. The latter two methods are more sophisticated and allow you to address the specific needs and concerns of your clients’ survivors. Listen to this article: Multiple-of-Income ApproachThe simplest method for estimating your clients’ life insurance needs is the multiple-of-income approach. The goal of this approach is to replace the primary breadwinner’s salary for a predetermined number of years. Begin by multiplying the client’s current annual income by how many years they want to provide financial support for their survivors. The recommendation is to have seven to ten years of life insurance. It’s an easy method, but it doesn’t take into account the specific needs of survivors, other sources of funds — such as the survivors’ income and investments — or different types of family structures. For example, this method may work well for a family with one child, but might not work as well for a family with six children. It also doesn’t take into account inflation or future salary increases. Using this approach may lead to over-insuring or underinsuring your clients, but it’s a start. Read why you should sell children’s life insurance Human Life Value ApproachThis method considers your client’s age, gender, occupation, current and future earnings, and employee benefits. There are several steps to determining the overall value of the client if they were to die today:
The primary goal of this method is to replace income lost. It doesn’t necessarily account for funeral costs, children’s educational expenses, or other specific future needs. Learn how you can maximize legacies with the tax benefits of life insurance Capital Needs AnalysisThe capital needs analysis is the most widely-used approach for estimating life insurance coverage. In addition to replacing the client’s salary, it also accounts for other sources of income and the specific needs of survivors. This method factors in:
Once all future needs are taken into consideration, there are then two ways to calculate how much insurance the client needs, based on how they want to utilize the funds in the future.
Discover the four steps to every final expense sale ● ● ● No matter which method you choose to calculate your clients’ life insurance needs, it’s always a good idea to have a baseline estimate of their survivors’ future financial needs to ensure the policy will provide sufficient support. Getting a life insurance policy is the smartest thing your clients can do to show their family they care! Need help starting the discussion? Take advantage of Life Insurance Awareness Month. What are two ways in determining an amount of life insurance?Financial Planning. Rule-of-Thumb Approach. This method of calculating an individual's insurance need is the most basic. ... . Income Replacement Approach. This approach uses the human value life concept to measure an individual's insurance need. ... . Needs Approach.. What are the 2 main types of life insurance What is the difference?Types of life insurance explained. There are two primary categories of life insurance: term and permanent. Term life insurance lasts for a set timeframe (usually 10 to 30 years), making it a more affordable option, while permanent life insurance lasts your entire lifetime.
What are the 2 life insurance policies?The two most common types of permanent life insurance are whole life and universal life. These policies provide some powerful advantages compared to term life insurance, including the fact that they build cash value that can be used while you're still alive.
What is the needs approach to determining amounts of life insurance based upon?The needs approach determines the amount of life insurance required by adding up all current and potential expenses and then subtracting the total amount of existing assets from that sum. The needs approach takes into account a variety of expenses, including: Funeral costs. Legal fees.
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