2. How much life insurance do you need? Calculating needs - Part1 Rina and Dmitri Ivanov are 38 years old and have one son, age 9. Rina is the primary earner, making $140,000 per year. Dmitri does not currently work. The Ivanovs have decided to use the needs analysis method to calculate the value of a life insurance policy that would provide for Dmitri and their son in the event of Rina's death. Rina and Dmitri estimate that while their son is still living at home, monthly living expenses for Dmitri and their child will be about $4,000 (in current dollars). After their son leaves for college in 9 years, Dmitri will need a monthly income of $3,300 until he retires at age 65. The Ivanovs estimate Dmitri's living expenses after 65 will only be $2,900 a month. The life expectancy of a man Dmitri's age is 82 years, so the Ivanov family calculates that Dmitri will spend about 17 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 Dmitri and Rina Date July 31, 2015 Ivanov Step 1: Financial resources needed after death 1. Annual living expenses and other needs Period 1 Period 2 Period 3 a. Monthly living $4,000 $ $ expenses b. $ $ $ Net yearly income needed (1a x 12) C. Number of years in 9 18 17 time period d. $ Total living needs per time period (16 x 1c) Total living expenses (add $1,736,400 Assignment: Chapter 08 Insuring Your Life $1,736,400 Total living expenses (add Line 1d for each period to check your total): In addition to these monthly expenses, other future outlays must be accounted for. Before they had a child, Dmitri worked as a mechanical engineer, but his knowledge and skills are now somewhat outdated. Therefore, they include $40,000 for Dmitri to go back to school. Additionally, Rina and Dmitri want to create a college fund of $60,000 to fund their child's college education. They estimate that final expenses (funeral costs and estate taxes) will amount to $18,000. Finally, they have taken out a loan for home improvements of $150,000 and a credit card balance of $1,800. They own their home but still have an outstanding mortgage of $400,000. 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 Child's college fund b. $ C. Other needs $0 3. Final expenses (funeral costs and estate taxes) Debt liquidation 4. a. House mortgage $ b. Other loans $ C. Total debt (4a + 4b) $ 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 Ivanovs should purchase, they need to factor in additional information. True or False: The value of Dmitri and Rina's other savings and investments should be accounted for in the remaining portion of the form. 2. How much life insurance do you need? Calculating needs - Part1 Rina and Dmitri Ivanov are 38 years old and have one son, age 9. Rina is the primary earner, making $140,000 per year. Dmitri does not currently work. The Ivanovs have decided to use the needs analysis method to calculate the value of a life insurance policy that would provide for Dmitri and their son in the event of Rina's death. Rina and Dmitri estimate that while their son is still living at home, monthly living expenses for Dmitri and their child will be about $4,000 (in current dollars). After their son leaves for college in 9 years, Dmitri will need a monthly income of $3,300 until he retires at age 65. The Ivanovs estimate Dmitri's living expenses after 65 will only be $2,900 a month. The life expectancy of a man Dmitri's age is 82 years, so the Ivanov family calculates that Dmitri will spend about 17 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 Dmitri and Rina Date July 31, 2015 Ivanov Step 1: Financial resources needed after death 1. Annual living expenses and other needs Period 1 Period 2 Period 3 a. Monthly living $4,000 $ $ expenses b. $ $ $ Net yearly income needed (1a x 12) C. Number of years in 9 18 17 time period d. $ Total living needs per time period (16 x 1c) Total living expenses (add $1,736,400 Assignment: Chapter 08 Insuring Your Life $1,736,400 Total living expenses (add Line 1d for each period to check your total): In addition to these monthly expenses, other future outlays must be accounted for. Before they had a child, Dmitri worked as a mechanical engineer, but his knowledge and skills are now somewhat outdated. Therefore, they include $40,000 for Dmitri to go back to school. Additionally, Rina and Dmitri want to create a college fund of $60,000 to fund their child's college education. They estimate that final expenses (funeral costs and estate taxes) will amount to $18,000. Finally, they have taken out a loan for home improvements of $150,000 and a credit card balance of $1,800. They own their home but still have an outstanding mortgage of $400,000. 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 Child's college fund b. $ C. Other needs $0 3. Final expenses (funeral costs and estate taxes) Debt liquidation 4. a. House mortgage $ b. Other loans $ C. Total debt (4a + 4b) $ 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 Ivanovs should purchase, they need to factor in additional information. True or False: The value of Dmitri and Rina's other savings and investments should be accounted for in the remaining portion of the form