PSI Life Exam Practice Test

Which of the following is NOT considered when determining the amount of life insurance needed using the needs approach?

1. Projected lifetime earnings

2. Future education costs for dependents

3. Funeral expenses

4. Projected lifetime earnings in the stock market, including dividends and growth account

The correct answer is: Projected lifetime earnings in the stock market, including dividends and growth account

The needs approach for determining the amount of life insurance required focuses on assessing the financial resources needed to meet the needs of beneficiaries after the insured's death. This approach evaluates various expenses and future financial obligations that would need to be covered, such as projected lifetime earnings, future education costs for dependents, and funeral expenses. All these factors contribute to a clear picture of the required amount of life insurance to ensure that beneficiaries can maintain their financial stability and cover essential expenses. In contrast, projected lifetime earnings in the stock market, including dividends and growth accounts, do not pertain to specific immediate needs or obligations that the beneficiaries will face. While investments and their returns are important for long-term financial planning and wealth accumulation, they are not direct expenses or needs that life insurance is intended to cover. The needs approach is about assessing immediate financial responsibilities and obligations, and thus, this factor falls outside its scope.