Massachusetts Life Producer Practice Exam

When using the needs approach for life insurance planning, a lump sum may be created to provide for all of the following EXCEPT?

1. Retirement income

2. Funeral expenses

3. Employee benefits

4. Mortgage payments

The correct answer is: Employee benefits

The needs approach for life insurance planning involves calculating the financial resources needed to support an individual or family after the death of a loved one. This method emphasizes identifying specific needs and expenses that life insurance will cover. When considering what a lump sum can provide for, funeral expenses are a direct and immediate financial need that life insurance can help cover. Similarly, mortgage payments represent a significant obligation that life insurance is often designated to fulfill, ensuring that the surviving family members can maintain their home without the financial burden of the mortgage. Retirement income can also be planned for using a life insurance payout, establishing a financial safety net for surviving dependents. However, employee benefits typically encompass a range of additional perks provided by employers, such as health insurance, retirement plans, and other non-cash compensations. These benefits are not directly funded or covered through a life insurance policy since they are contingent on employment status. Therefore, a lump sum from a life insurance policy is not designed to replace lost employee benefits, which are specific to the employment relationship, making it the exception in this context.