Maryland Life and Health Insurance License Practice Exam

Which of these is a method of determining the level of funds required for ongoing support in the event of the breadwinner's death?

1. Human life value

2. Capital needs analysis

3. Needs-based assessment

4. Return of premium calculation

The correct answer is: Human life value

Human life value is a method used to determine the financial value of an individual's life based on their potential earnings, expenses, and the economic impact their absence would have on dependents or beneficiaries. This approach calculates the income and other financial contributions an individual makes over their working life and estimates the monetary value of those contributions. By considering factors such as age, occupation, and life expectancy, this method provides a way to determine how much life insurance coverage would be necessary to provide financial support to survivors in the event of the breadwinner's death. In the context of life insurance planning, human life value plays a crucial role, as it helps individuals and families understand the financial gap that could arise if the primary income earner were to pass away unexpectedly. By establishing this value, it becomes easier to assess how much insurance is needed to maintain the family’s standard of living. The other methods mentioned serve different purposes in financial planning. Capital needs analysis focuses on evaluating specific capital needs for future obligations, needs-based assessments consider a broader range of financial needs and goals, and return of premium calculations are related to policy pricing rather than determining coverage needs in the event of death.