$2.$ How much life insurance do you need? Calculating needs $-$ Part$1$

Nathan and Marissa Azinian are $37$ years old and have one son, age $5.$ Nathan is the primary earner, making $$87,000$ per year. Marissa does not currently work. The Azinians have decided to use the needs analysis method to calculate the value of a life insurance policy that would provide for Marissa and their son in the event of Nathan$$s death.

Nathan and Marissa estimate that while their son is still living at home, monthly living expenses for Marissa and their child will be about $$3,700($in current dollars$).$ After their son leaves for college in $13$ years, Marissa will need a monthly income of $$3,100$ until she retires at age $65.$ The Azinians estimate Marissa$$s living expenses after $65$ will only be $$2,700$ a month. The life expectancy of a woman Marissa$$s age is $87$ years, so the Azinian family calculates that Marissa will spend about $22$ years in retirement.

Using this information, complete the first portion of the needs analysis worksheet to estimate their total living expenses.

Life Insurance Needs Analysis Worksheet

Name of insured Nathan and Marissa Azinian

Step $1$: Financial resources needed after death

$1.$ Annual living expenses and other needs

Period $1$ Period $2$ Period $3$

a$.$ Monthly living expenses $$3,700$

$

$

b$.$ Net yearly income needed $(1$a x $12)$

$

$

$

c$.$ Number of years in time period $131522$

d$.$ Total living needs per time period $(1$b x $1$c$)$

$

$

$

Total living expenses $($add Line $1$d for each period to check your total$)$: $$1,848,000$

In addition to these monthly expenses, other future outlays must be accounted for. Before they had a child, Marissa worked as a real estate agent, but her knowledge and skills are now somewhat outdated. Therefore, they include $$30,000$ for Marissa to go back to school. Additionally, Nathan and Marissa want to create a college fund of $$35,000$ to fund their child$$s college education. They estimate that final expenses $($funeral costs and estate taxes$)$ will amount to $$12,000.$ Finally, they have taken out a loan for a business venture of $$32,200$ and a credit card balance of $$1,200.$ Because the Azinians are renters, they have no outstanding mortgage.

Using this information, complete the next portion of Step $1$ to determine the total financial resources needed.

$2.$ Special needs

a$.$ Spouse$$s education fund

$

b$.$ Child$$s college fund

$

c$.$ Other needs $$0$

$3.$ Final expenses $($funeral costs and estate taxes$)$

$

$4.$ Debt liquidation

a$.$ House mortgage

$

b$.$ Other loans

$

c$.$ Total debt $(4$a $+4$b$)$

$

$5.$ Other financial needs $$0$

Total financial resources needed $($add right$-$hand column plus the Total Living Expenses you calculated$)$:

$

The second half of the needs analysis worksheet is not shown on this page. To complete the worksheet and determine the value of the life insurance policy the Azinians should purchase, they need to factor in additional information.

True or False: The value of Nathan$$s employer$-$offered life insurance policy should be accounted for in the remaining portion of the form.

True

False