Needs Analysis and Financial Planning Flashcards

Which of the following best describes the 'income replacement ratio' used in retirement planning needs analysis?

Answer: The percentage of pre-retirement income needed to maintain lifestyle in retirement

The income replacement ratio is the percentage of pre-retirement income a retiree needs to maintain their standard of living, commonly estimated at 70–80%.

When analyzing estate conservation needs, a financial advisor is primarily concerned with:

Answer: Ensuring sufficient assets remain after taxes and settlement costs to transfer to heirs

Estate conservation planning uses insurance to offset taxes and estate settlement costs so that wealth intended for heirs is not eroded.

What makes inflation an important consideration in a life insurance needs analysis?

Answer: It erodes the purchasing power of a fixed death benefit over time

Inflation reduces the real value of a fixed death benefit, meaning coverage that seems adequate today may be insufficient to meet future obligations.

Which of the following represents a 'final expense' need in a life insurance needs analysis?

Answer: Funeral costs and estate administration expenses

Final expenses include funeral and burial costs, outstanding medical bills, and probate or estate administration fees that arise immediately at death.

A single parent with two young children would have which need identified as MOST critical in a life insurance needs analysis?

Answer: Income replacement and ongoing childcare coverage for dependents

For a single parent, replacing lost income and funding children's care and education are the most critical insurance needs because dependents rely entirely on that one earner.

How does existing group life insurance coverage affect an individual's personal life insurance needs analysis?

Answer: It reduces the total insurance gap that personal coverage must fill

All existing coverage sources, including group benefits, are credited against the total identified need, reducing the gap that new personal coverage must address.

Which of the following is a key limitation of the Human Life Value approach when conducting a needs analysis?

Answer: It focuses on earning capacity and may overlook specific financial obligations

HLV centers on income potential but does not specifically account for debts, education costs, or other defined obligations that a capital needs approach would capture.