Needs Analysis and Financial Planning Flashcards

A newly married couple with no children asks an advisor to help them plan for disability. Both spouses work. Which factor is LEAST relevant when determining disability income insurance needs for this couple?

Answer: The number of dependents relying on their income

With no children or other dependents, the number of dependents is not a significant factor in their disability income planning at this stage.

In the context of financial needs analysis, 'capital liquidation' refers to:

Answer: A method of calculating how much capital is needed if it is drawn down to zero over a defined period

The capital liquidation approach calculates the lump sum needed to provide income for a set period, after which the capital is fully depleted.

An advisor is completing a needs analysis for a 62-year-old client planning to retire at 65. The client expects CPP of $900/month and OAS of $700/month starting at age 65. Her desired retirement income is $4,500/month. What monthly shortfall must be funded from personal savings or insurance products?

Answer: $2,900/month

CPP ($900) plus OAS ($700) equals $1,600/month in guaranteed income, leaving a $2,900/month shortfall from the $4,500 goal.

Which of the following scenarios would MOST likely lead an advisor to recommend a permanent life insurance policy over term insurance during a needs analysis?

Answer: A client with a permanent need to fund a buy-sell agreement upon death

A buy-sell agreement typically creates a permanent, lifelong insurance need because the business obligation exists regardless of when death occurs.

A client's needs analysis identifies that she needs $800,000 of life insurance. She currently has $150,000 in RRSPs, a $50,000 TFSA, and a $100,000 non-registered GIC. How should these assets be treated?

Answer: They reduce the insurance need, so only $500,000 of new coverage is required

Existing liquid assets represent resources available to survivors and are subtracted from the gross insurance need to determine the coverage gap.

When conducting a financial needs analysis, an advisor discovers that the client has not updated his beneficiary designations since his divorce five years ago. What is the advisor's MOST appropriate action?

Answer: Flag it as a planning gap and recommend the client update all beneficiary designations

Identifying outdated beneficiary designations and recommending an update is part of thorough financial needs analysis and holistic planning.

A client earning $90,000 annually has no group disability coverage. An individual disability policy typically replaces what percentage of pre-disability earned income?

Answer: 50% to 70%, based on underwriting guidelines

Disability insurers typically replace 60–70% (generally 50–70%) of pre-disability income to maintain a financial incentive to return to work.