What does the capital retention approach focus on for determining insurance needs?

The capital retention approach emphasizes the importance of evaluating an individual's current and future income needs in relation to their financial obligations and lifestyle requirements. This approach focuses on understanding the present value of future income needs and immediate cash requirements necessary to maintain a desired standard of living, particularly in the event of a loss of income due to disability, illness, or death. By assessing today's value of these financial requirements, individuals can determine the most appropriate level of insurance coverage needed to secure their financial wellbeing.

In contrast, other options address different aspects of financial planning. For instance, while considering total assets minus liabilities provides a snapshot of net worth, it does not directly correlate to the income and cash flow needs of an individual. The future value of income over a lifetime looks at income growth but may overlook immediate cash needs. Similarly, evaluating insurance policy duration and payment can be essential in a broader financial strategy but does not explicitly focus on the present requirements that the capital retention approach aims to address. Therefore, the capital retention approach centers on converting future income and cash needs into today's terms to establish an adequate insurance coverage level.