Final answer:
When determining Life Insurance coverage, it is essential to consider factors that affect dependents, such as child's education, final expenses, and mortgage payoff, but not the insured's self-maintenance costs. Whole life insurance policies offer a death benefit and accumulate cash value, which is an important consideration in personal financial planning.
Step-by-step explanation:
When determining the amount of Life Insurance a client needs, it is necessary to consider many factors which could have financial impacts on the insured's dependents. These factors often include child's education, final expenses, and mortgage payoff. However, determining Life Insurance needs does not typically require consideration of the insured's self-maintenance costs, as these expenses cease upon death and do not directly affect the financial needs of surviving dependents.
Cash-value or whole life insurance policies provide a death benefit and have a cash value component, an accumulated amount that can serve as a financial resource for the policyholder during their lifetime. Additionally, it's important for individuals to evaluate the costs and benefits of buying insurance along with their overall financial strategy, which includes providing for dependents, dealing with debt, and supporting personal or charitable goals.
The basic principle in insurance underwriting is that the payments collected over time must cover the average person’s claims, the operational costs, and also allow a margin for the firm's profits. This model ensures that insurance companies can meet their obligations to policyholders while remaining solvent and profitable.