The capital retention approach is a method used to estimate the amount of life insurance to own. Under this approach, the insurance proceeds are not liquidated rather are retained.
The capital retention approach refers to one of 2 methods of estimating your family’s life insurance requirements under the family needs approach. This approach is not an independent one. Instead, it is one of 2 ways for determining the lump sum of insurance proceeds the existing spouse will require to receive and invest in taking care of continuing family income requirements.
Under the approach, you calculate the required lump sum amount predicting that you will be saving insurance proceeds when giving income during the blackout, dependency, retirement, and readjustment periods. Thus, you ensure that resources are still existing for generating income should the existing spouse outlive her or his life expectancy. Further, you save capital to be passed on to heirs when the existing spouse dies.
You need to focus on the capital retention approach when dealing with the family needs approach when you want to save life insurance proceeds, respond to continuing income needs firmly through interest earned, give income to the existing spouse indefinitely if the spouse outlives her or his life expectancy, and give assets for the heirs for inheriting.