2. How much life insurance do you need? Calculating needs - Part1

Ginny and Larry Stewart are 37 years old and have one daughter, age 5. Ginny is the primary earner, making $87,000 per year. Larry does not currently work. The Stewarts have decided to use the needs analysis method to calculate the value of a life insurance policy that would provide for Larry and their daughter in the event of Ginnys death.

Ginny and Larry estimate that while their daughter is still living at home, monthly living expenses for Larry and their child will be about $3,700 (in current dollars). After their daughter leaves for college in 13 years, Larry will need a monthly income of $3,100 until he retires at age 65. The Stewarts estimate Larrys living expenses after 65 will only be $2,700 a month. The life expectancy of a man Larrys age is 82 years, so the Stewart family calculates that Larry 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	Larry and Ginny Stewart			Date	July 31, 2015
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 (1a x 12)
c.	Number of years in time period	13	15	17
d.	Total living needs per time period (1b x 1c)
				Total living expenses (add Line 1d for each period to check your total):	$1,686,000

In addition to these monthly expenses, other future outlays must be accounted for. Before they had a child, Larry worked as a real estate agent, but his knowledge and skills are now somewhat outdated. Therefore, they include $30,000 for Larry to go back to school. Additionally, Ginny and Larry want to create a college fund of $35,000 to fund their childs 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.	Spouses education fund
b.	Childs 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 (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 Stewarts should purchase, they need to factor in additional information.

True or False: Larrys annual Social Security benefit should be accounted for in the remaining portion of the form.

True

False