Harry and Belinda Johnson spend $9 per month on life insurance in the form of a premium on a $10,000, paid-at-65 cash-value policy on Harry. Belinda has a group term insurance policy from her employer with a face amount of $59,400

(1.5 times her annual salary). By choosing a group life insurance plan from his menu of employee benefi ts, Harry now has

$30,900 (his annual salary) of group term life insurance. Harry and Belinda have decided that, because they have no children, they could reduce their life insurance needs by protecting one another’s income for only four years, assuming the survivor would be able to fend for himself or herself after that time. They also realize that their savings fund is so low that it would have no bearing on their life insurance needs. Harry and Belinda are basing their calculations on a projected 4 percent rate of return after taxes and infl ation. They also estimate the following expenses: $10,000 for fi nal expenses, $6000 for readjustment expenses, and $5000 for repayment of short-term debts.

(a) Should the $3000 interest earnings from Harry’s trust fund be included in his annual income for the purposes of calculating the likely dollar loss if he were to die?

(See the discussions about the Johnsons at the end of Chapter 2.) Explain your response.

(b) Based on your response to the previous question, how much more life insurance does Harry need? Use the Run the Numbers worksheet on page 346 to arrive at your answer.

(c) Repeat the calculations to arrive at the additional life insurance needed on Belinda’s life.