What is the purpose of an insurance needs analysis?

• A. To forecast investment returns
• B. To determine the amount and type of coverage required to protect against financial loss due to death or disability
• C. To set retirement age
• D. To analyze tax efficiency

Answer: (B)

The purpose of an insurance needs analysis is to determine the amount and type of coverage required to protect against financial loss caused by death or disability. It involves evaluating a person’s current resources, ongoing expenses, dependents’ needs, and future goals (such as mortgage payoff, education, and income replacement) and then identifying gaps where insurance is needed. The goal is to tailor coverage so that if the breadwinner dies or is unable to work, there is enough protection to maintain the family’s financial plan and meet ongoing obligations, while also considering affordability and the right mix of term and permanent options.

This focus on safeguarding against loss, rather than on investment growth, retirement timing, or tax strategy, is why the best choice describes determining the amount and type of insurance needed to shield against financial loss from death or disability.