Tennessee Insurance Practice Exam

What does needs analysis in life insurance planning establish?

1. Financial goals of the individual

2. Insurance company profitability

3. Needs of the individual and his dependents

4. Local economic conditions

The correct answer is: Needs of the individual and his dependents

Needs analysis in life insurance planning is a critical process that involves assessing the unique financial needs of an individual and their dependents. This analysis takes into account various factors including current income, debts, living expenses, future financial obligations (such as children's education), and the dependents' financial needs in the event of the individual's passing. By determining the needs of the individual and their dependents, this approach helps establish the appropriate amount of life insurance coverage necessary to ensure that loved ones will be financially secure. This is particularly important because life insurance serves the purpose of providing financial support to beneficiaries when the insured individual is no longer able to provide for them. The other options, while they may be relevant in broader financial planning discussions, do not directly address the primary purpose of a needs analysis in life insurance. Financial goals are more about an individual's aspirations rather than immediate protection needs, insurance company profitability concerns the business aspects of the insurance provider rather than the insured individuals, and local economic conditions can influence investment strategies but do not directly relate to assessing personal insurance needs.