What is the Capitalization of Income approach primarily used for?

The Capitalization of Income approach is primarily used to determine life insurance needs to replace income for dependents. This method involves assessing an individual's expected future income and calculating its present value, which helps in understanding how much life insurance coverage would be necessary to replace that income in the event of the insured's untimely death. This ensures that dependents can maintain their standard of living and cover future expenses even after the loss of their primary income provider.

In utilizing this approach, the focus is on evaluating the financial implications of losing the income source, which directly ties into the life insurance needs analysis. This method considers various factors such as the individual's current income, expected salary growth, and how many years of income are necessary to support dependents until they can financially stabilize.

Considering the other options, determining health insurance needs focuses on medical coverage requirements rather than income replacement. Calculating the value of a real estate investment deals with assessing property value based on its income-generating potential, which is not aligned with life insurance needs. Assessing long-term care insurance requirements centers on planning for potential costs associated with long-term health issues, which again does not address the need for income replacement. Therefore, the Capitalization of Income approach is specifically tailored for evaluating life insurance requirements