Final answer:
The best rule of thumb for determining life insurance needs is that the amount of coverage should be based on dependents, financial obligations, occupation, and future goals, rather than just the number of dependents or income level.
Step-by-step explanation:
When determining how much life insurance someone should purchase, there are several considerations to take into account. The best rule of thumb acknowledges that individual circumstances greatly influence insurance needs. Statement (a), 'The more dependents one has, the more life insurance one needs,' generally holds true, as individuals with more dependents often need more coverage to secure their financial future in case of an untimely demise. However, it's also important to consider factors such as income level, debts, and future financial responsibilities, not just the number of dependents.
There is a common misconception, as presented in statement (b), which suggests that only retirees or people with disabilities need to buy life insurance; however, life insurance can be beneficial for people in various life stages to help protect their dependents financially. Statement (c), 'The lower one's income, the more life insurance one needs,' is not necessarily true, as insurance needs should reflect a person's financial obligations and goals, not just their income. People in dangerous occupations, as suggested by statement (d), may indeed need more life insurance coverage, reflecting the higher risks associated with their workplace environments.
In conclusion, a combination of these factors, including dependence, occupation, financial obligations, and future goals, should guide how much life insurance to purchase. As mentioned, risk groups and actuarial fairness suggest that different individuals face different levels of risks and this should also be reflected in their life insurance coverage.