Which method does the Needs Approach utilize to determine insurance protection amounts?

The Needs Approach focuses on evaluating the specific needs and objectives of a family or business in the event of a loss, which makes it the correct choice. This method considers various factors, such as ongoing living expenses, debts, future financial goals (like education for children), and the overall economic impact of the loss of an income provider. By assessing these unique needs, the Needs Approach aims to ensure that the amount of insurance coverage will sufficiently protect the dependents or beneficiaries from financial hardship following a loss, thereby providing a tailored solution that reflects the actual circumstances rather than applying a generalized standard.

This approach stands out as it is not based on historical data or industry averages; instead, it assesses the personal and financial situation of the insured and their beneficiaries. By focusing on individual circumstances, it recognizes that each family or business has different requirements and potential financial needs in the wake of losing a key income source. This specificity is a primary reason the Needs Approach is effective and widely used in determining adequate insurance protection amounts.