Tennessee Life Producer Practice Exam

In life insurance, the needs approach is primarily used for what purpose?

1. To verify a claim

2. To establish how much life insurance a client should apply for

3. To calculate the profitability of the policy

4. To determine the policyholder's investment risks

The correct answer is: To establish how much life insurance a client should apply for

The needs approach in life insurance is focused on assessing the financial needs of an individual or family in the event of the policyholder's death. This approach evaluates various factors, such as income replacement, debts, children's education, mortgage obligations, and other financial responsibilities that would need to be covered to maintain the same standard of living for the beneficiaries. By determining these needs, the agent can recommend an appropriate amount of life insurance coverage that ensures the financial security of the dependents left behind. This tailored assessment helps clients understand how much life insurance they truly require, rather than relying on arbitrary figures or industry averages. The other options do not align with the primary focus of the needs approach. Verifying a claim relates to the claims process after a policyholder's death, calculating profitability connects to the insurer's business model rather than the client's needs, and assessing investment risks pertains more to the financial planning aspects rather than determining necessary life insurance coverage.