Use Worksheet 8.1. Sharon Epstein is a 72-year-old widow who has recently been diagnosed with Alzheimer’s disease. She has limited financial assets of her own and has been living with her daughter Miriam for 2 years. Her only income is $850 a month in Social Security survivor’s benefits. Miriam wants to make sure her mother will be taken care of if Miriam should die. Miriam, 40, is single and earns $55,000 a year as a human resources manager for a small manufacturing firm. She owns a condo with a current market value of $100,000 and has a $70,000 mortgage. Other debts include a $5,000 auto loan and $500 in various credit card balances. Her 401(k) plan has a current balance of $24,500, and she keeps $7,500 in a money market account for emergencies. After talking with her mother’s doctor, Miriam believes that her mother will be able to continue living independently for another 2 to 3 years. She estimates that her mother would need about $2,000 a month to cover her living expenses and medical costs during this time. After that, Miriam’s mother will probably need nursing home care. Miriam calls several local nursing homes and finds that it will cost about $5,000 a month when her mother enters a nursing home. Her mother’s doctor says it is difficult to estimate her mother’s life expectancy but indicates that with proper care some Alzheimer’s patients can live 10 or more years after diagnosis. Miriam also estimates that her personal final expenses would be around $5,000, and she’d like to provide a $25,000 contingency fund that would be used to pay a trusted friend to supervise her mother’s care if Miriam were no longer alive. Use Worksheet 8.1 to calculate Miriam’s total life insurance requirements and recommend the type of policy she should buy.

Worksheet 8.1

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LIFE INSURANCE NEEDS ANALYSIS METHOD Insured's Name Harry and Denise Klauder Step 1: Financial resources needed after death 1. Annual living expenses and other needs: Monthly living expenses a. b. Net yearly income needed (a x 12) C. Number of years in time period Date April 12, 2010 $ Period 1 3,500 Period 2 $ 3,000 $ Period 3 2,750 $ 42,000 $ 36,000 $ 33,000 12 18 22 $ 504,000 $ 648,000 $ 726,000 $ 1,878,000 d. Total living need per time period (bx c) TOTAL LIVING EXPENSES (add line d for each period): 2. Special needs a. b. C. Spouse education fund Children's college fund Other needs 3. Final expenses (funeral, estate costs, etc.) 4. Debt liquidation a. House mortgage b. Other loans C. Total debt (4 a +4 b) $ 25,000 $ 75,000 0 $ 15,000 $ 150,000 5,000 $ 155,000 0 5. Other financial needs TOTAL FINANCIAL RESOURCES NEEDED (add right column) Step 2: Financial resources available after death 1. Income Period 1 a. Annual Social Security survivor's $ 38,400 Period 2 0 Period 3 0 b. C. benefits Surviving spouse's annual income Other annual pensions and Social Security benefits 0 $ 35,000 0 0 0 $ 27,000 d. Annual income e. f. $ 38,400 $ 35,000 $ 27,000 Number of years in time period 12 18 22 $ 460,800 $ 630,000 $ 594,000 Total period income (dx e) g. TOTAL INCOME 2. Savings and investments 3. Other life insurance 4. Other resources TOTAL FINANCIAL RESOURCES AVAILABLE (1g + 2 + 3 + 4) Step 3: Additional Life Insurance needed Step 1: Total financial resources needed Step 2: Total financial resources available ADDITIONAL LIFE INSURANCE NEEDED $ 2,148,000 $ 1,684,800 $ 65,000 $ 100,000 0 $ 1,849,800 $ 2,148,000 $ 1,849,800 $ 298,200