What is the Needs Approach?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 10 September 2019
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In matters of finance and estate planning, the needs approach is a strategy used to determine how much life insurance is necessary to allow an individual or family to cover their needs. The idea is to identify the amount of life insurance required to help family members maintain an equitable standard of living in the event of the death of the insured party, while still managing end of life expenses and any outstanding debts that may exist. The scope of the expenses considered under this approach will vary, based on the circumstances of the individual or family unit.

The needs approach to estate planning has a different focus to the other more common strategy known as the human-life approach. This strategy focuses more on how much life insurance would be required to make up for the financial loss in the event that the insured party should die. Here the goal is to determine the amount of insurance required to maintain the status quo, as if the policyholder were still alive and generating an income. Calculating the insurance amount often involves considering the age and general health of the insured party, the annual wage and any benefits that go along with the employment, and the type of pension or retirement plan that is held by the policy holder. While this approach addresses many of the same expenses as the needs approach, many do not consider it to be as all-encompassing.


There are many different types of expenses that may be included in using the needs approach. End of life expenses, such as funeral costs, any state or gift taxes that are assessed, legal fees to probate the will, expenses incurred by the estate’s administrators, and end-of-life medical costs are just a few examples. In addition, issues such as outstanding balances on mortgages, other loans, credit card debt, child care and educational expenses for minor children, and general living allowances are also part of the formula.

One of the benefits of the needs approach is that it tends to address long-term needs as well as the immediate expenses that arise after the death of a loved one. By making sure there is enough coverage to handle medical, funeral, and other expenses that must be taken care of quickly, survivors of the deceased do not have to worry about money as they move through the grieving process. At the same time, the provisions of life insurance coverage created using the needs approach also helps to ensure that loved ones will continue to enjoy financial stability over the long term. When calculated properly, the coverage will also provide additional time for everyone involved to adjust to the loss of the insured party, and get back to the business of living.


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