2. How much life insurance do you need? Calculating needs - Part1 Kevin and Kathy Woo are 37 years old and have one daughter, age 5. Kevin is the primary earner, making $87,000 per year. Kathy does not currently work. The Woos have decided to use the needs analysis method to calculate the value of a life insurance policy that would provide for Kathy and their daughter in the event of Kevin's death. Kevin and Kathy estimate that while their daughter is still living at home, monthly living expenses for Kathy and their child will be about $3,700 (in current dollars). After their daughter leaves for college in 13 years, Kathy will need a monthly income of $3,100 until she retires at age 65. The Woos estimate Kathy's living expenses after 65 will only be $2,700 a month. The life expectancy of a woman Kathy's age is 87 years, so the Woo family calculates that Kathy 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 Kevin and Kathy Date July 31, 2015 Woo Step 1: Financial resources needed after death 1. Annual living expenses and other needs Period 1 Period 2 Period 3 a. Monthly living $3,700 needs Period 1 Period 2 Period 3 a. Monthly living $3,700 $ $ expenses b. Net yearly income needed (1a x 12) Number of years in time period c. 13 15 22 d. Total living needs $ per time period (16 x 10) $1,848,000 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 Before they had a child, Kathy worked as a mechanical engineer, but her knowledge and skills are now somewhat outdated. Therefore, they include $30,000 for Kathy to go back to school. Additionally, Kevin and Kathy 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 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 $ b. Child's college fund 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 Woos should purchase, they need to factor in additional information. True or False: Kathy's annual Social Security benefit should be accounted for in the remaining portion of the form. O True O False 2. How much life insurance do you need? Calculating needs - Part1 Kevin and Kathy Woo are 37 years old and have one daughter, age 5. Kevin is the primary earner, making $87,000 per year. Kathy does not currently work. The Woos have decided to use the needs analysis method to calculate the value of a life insurance policy that would provide for Kathy and their daughter in the event of Kevin's death. Kevin and Kathy estimate that while their daughter is still living at home, monthly living expenses for Kathy and their child will be about $3,700 (in current dollars). After their daughter leaves for college in 13 years, Kathy will need a monthly income of $3,100 until she retires at age 65. The Woos estimate Kathy's living expenses after 65 will only be $2,700 a month. The life expectancy of a woman Kathy's age is 87 years, so the Woo family calculates that Kathy 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 Kevin and Kathy Date July 31, 2015 Woo Step 1: Financial resources needed after death 1. Annual living expenses and other needs Period 1 Period 2 Period 3 a. Monthly living $3,700 needs Period 1 Period 2 Period 3 a. Monthly living $3,700 $ $ expenses b. Net yearly income needed (1a x 12) Number of years in time period c. 13 15 22 d. Total living needs $ per time period (16 x 10) $1,848,000 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, Kathy worked as a mechanical engineer, but her knowledge and skills are now somewhat outdated. Therefore, they include $30,000 for Kathy to go back to school. Additionally, Kevin and Kathy 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 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 $ b. Child's college fund 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 Woos should purchase, they need to factor in additional information. True or False: Kathy's annual Social Security benefit should be accounted for in the remaining portion of the form. O True O False