2. How much life insurance do you need? Calculating needs - Part 1 Steve and Susan Murphy are 38 years old and have one son, age 9. Steve is the primary earner, making $140,000 per year. Susan does not currently work. The Murphys have decided to use the needs analysis method to calculate the value of a life insurance policy that would provide for Susan and their son in the event of Steve's death Steve and Susan estimate that while their son is still living at home, monthly living expenses for Susan and their child will be about $4,000 (in current dollars). After their son leaves for college in 9 years, Susan will need a monthly income of $3,300 until she retires at age 65. The Murphys estimate Susan's living expenses after 65 will only be $2,900 a month. The life expectancy of a woman Susan's age is 87 years, so the Murphy family calculates that Susan will spend about 22 years in retirement. Using this information, complete the first portion of the needs analysis worksheet to estimate their total aving expenses. Life Insurance Needs Analysis Worksheet Name of insured Steve and Susan Murphy Date July 31, 2015 Step 1: Financial resources needed after death 1. Annual living expenses and other needs Period 1 Period 2 Period 3 $4,000 Monthly living expenses Net yearly income needed (12) 18 22 Number of years in time period Total living needs per time period (16 x 1c) d $ $1,910,400 Total living expenses (add Line 1d for each period to check your total): In addition to these monthly expenses, other future outlwys must be accounted for. Before they had a child, Susan worked as a mechanical engineer, but her knowledge and skills are now somewhat outdated. Therefore, they include $40,000 for Susan to go back to school. Additionally, Steve and Susan 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 a business venture of $32,200 and a credit card balance of $1,200. Because the Murphys 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 b. 5 $0 3. Spouse's education fund Child's college fund Other needs Final expenses (funeral costs and estate taxes) Debt liquidation House mortgage Other loans 4 b. Using this information, complete the next portion of Step 1 to determine the total financial resources needed. 2. Special needs $ b. Spouse's education fund Child's college fund Other needs Final expenses (funeral costs and estate taxes) Debt liquidation $0 3 $ 4. a. House mortgage 5 b. S c. 5 Other loans Total debt (4a + 4b) Other financial needs Total financial resources needed (add right-hand column plus the Total Living Expenses you calculated): $0 5 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 Murphys should purchase, they need to factor in additional information. True or False: The value of Steve and Susan's other savings and investments should be accounted for in the remaining portion of the form True False 2. How much life insurance do you need? Calculating needs - Part 1 Steve and Susan Murphy are 38 years old and have one son, age 9. Steve is the primary earner, making $140,000 per year. Susan does not currently work. The Murphys have decided to use the needs analysis method to calculate the value of a life insurance policy that would provide for Susan and their son in the event of Steve's death Steve and Susan estimate that while their son is still living at home, monthly living expenses for Susan and their child will be about $4,000 (in current dollars). After their son leaves for college in 9 years, Susan will need a monthly income of $3,300 until she retires at age 65. The Murphys estimate Susan's living expenses after 65 will only be $2,900 a month. The life expectancy of a woman Susan's age is 87 years, so the Murphy family calculates that Susan will spend about 22 years in retirement. Using this information, complete the first portion of the needs analysis worksheet to estimate their total aving expenses. Life Insurance Needs Analysis Worksheet Name of insured Steve and Susan Murphy Date July 31, 2015 Step 1: Financial resources needed after death 1. Annual living expenses and other needs Period 1 Period 2 Period 3 $4,000 Monthly living expenses Net yearly income needed (12) 18 22 Number of years in time period Total living needs per time period (16 x 1c) d $ $1,910,400 Total living expenses (add Line 1d for each period to check your total): In addition to these monthly expenses, other future outlwys must be accounted for. Before they had a child, Susan worked as a mechanical engineer, but her knowledge and skills are now somewhat outdated. Therefore, they include $40,000 for Susan to go back to school. Additionally, Steve and Susan 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 a business venture of $32,200 and a credit card balance of $1,200. Because the Murphys 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 b. 5 $0 3. Spouse's education fund Child's college fund Other needs Final expenses (funeral costs and estate taxes) Debt liquidation House mortgage Other loans 4 b. Using this information, complete the next portion of Step 1 to determine the total financial resources needed. 2. Special needs $ b. Spouse's education fund Child's college fund Other needs Final expenses (funeral costs and estate taxes) Debt liquidation $0 3 $ 4. a. House mortgage 5 b. S c. 5 Other loans Total debt (4a + 4b) Other financial needs Total financial resources needed (add right-hand column plus the Total Living Expenses you calculated): $0 5 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 Murphys should purchase, they need to factor in additional information. True or False: The value of Steve and Susan's other savings and investments should be accounted for in the remaining portion of the form True False
