The Income Replacement Method assumes that the purpose of insurance is to replace the paychecks that you would have brought home to your family. By contrast, the Needs Fulfillment Method assumes that the purpose of insurance is to meet family needs. The amount of insurance required to satisfy these needs may be more or less than the amount of insurance required to replace your income.

So which method should you use? The most cautious approach would be to analyze your insurance needs using both methods, and then to compare the results. Most people want to be sure that they have at least enough coverage to meet family needs, but not so much that the insurance puts the family in a better financial position after the insured person dies than they were in while the insured was alive!