Needs Approach

Updated: 09 June 2023

What Does Needs Approach Mean?

The needs approach is a method used to calculate the amount of life insurance that an individual or a family needs to cover their necessities.

The needs approach is a function of two variables: how much money is necessary at the time of death to meet obligations and how much future income is needed to sustain the household without falling into poverty.

Insuranceopedia Explains Needs Approach

The needs approach determines the amount of life insurance required by adding up all current and potential expenses and then subtracting the total amount of existing assets from that sum.

The needs approach takes into account a variety of expenses, including:

  • Funeral costs
  • Legal fees
  • Estate taxes
  • Business buyout costs
  • Probate fees
  • Medical deductibles
  • Emergency funds
  • Mortgage expenses or rent
  • Debt and loan repayment
  • College fees and tuition
  • Childcare and school fees
  • Maintenance costs

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