Question

Joetta Hernandez is a single parent with two children and earns ​$56,500 a year. Her​ employer's group life insurance policy would pay 2.5 times her salary. She also has ​$75,333 saved in a​ 401(k) plan, ​$6,278 in mutual​ funds, and a ​$3,767 CD. She wants to purchase term life insurance for 15 years until her youngest child is​ self-supporting. She is not concerned about her outstanding​ mortgage, as the children would live with her sister in the event of​ Joetta's death. Assuming she can receive a 4 percent​ after-tax, after-inflation return on insurance​ proceeds, use the earnings multiple methods to calculate her insurance need. How much more insurance does Joetta need to​ buy? What other information would you need to know to use the needs approach to calculate​ Joetta's insurance​ coverage? Click on the table icon to view the PVIFA table LOADING...

Assuming she can receive a percent​ after-tax, after-inflation return on insurance proceeds, and using the earnings multiple​ method, Joetta's insurance need is ​$ ??. ​(Round to the nearest​ dollar.)

Answer 1

Answer : Calculation of Additional Insurance Needed :

Current Insurance = 2.5 * Current salary

= 2.5 * 56500

= 141250

Insurance Required = Current Income * (1 - 0.26) * PVIF@4% for 15 years

Under Earning Multiple Method There is drop of 26% for two members

PVIF@4%for 1 yar taken from Table

Therefore

Joettta Insurance Required = Current Income * (1 - 0.26) * 11.118

= 56500 * (1 - 0.26) * 11.118

   = 464,843.58

Additinal Insurance Needed = 464843.58 - 141250

= $323593.58 or 323594

Under Needs Based Approach we need Immediate needs at the time of deceased such as burial Cost Estate Fees and also Debt payoff funds needed such as loans etc.