The other alternative is the needs approach, which is more widely used. First, analyze the family's needs and objectives in case a breadwinner dies or becomes disabled. A need is any one of the following:

1. Last expense fund - including medical and funeral expenses.
2. Readjustment fund - non-recurring expenses incurred while the family adjusts to the loss of income.
3. Dependency period income - children and dependents required income for current living expenses and routine maintenance throughout the household.
4. Mortgage payment fund - The ability to payoff the mortgage should a breadwinner decease.
5. Educational fund - Providing for a child's education in the form of a lump sum can lessen the burden during financial hardship.
6. Life income for the surviving spouse - In the case of one non-working spouse, this alleviates having to produce sufficient income for a given time period.

The needs approach is not limited to fulfilling objectives in the event of death only. It also considers a family's living needs, such as providing retirement funds and planning a child's education.

Practice Question: When utilizing the needs approach in the determination of life insurance, which of the following factor(s) should be considered?

1. The family expenses that will remain after the wage earner dies.
2. The value of the life that is lost in the event the wage earner dies.
3. The income that is generated by the wage earner.
4. The number of dependents.

A. 1 only
B. 3 only
C. 1, 2, and 3
D. 1, 3, and 4
E. 1, 2, 3, and 4

Answer: D
Statements 1, 3, and 4 are correct

Disability and Long-Term Care Insurance

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