2. Life Insurance Needs for a Young Married Couple. Amy and Mack Holly from Rapid City, South Dakota, have been married for three years. They recently bought a home costing $212,000 using a $190,000 mortgage. They have no other debts. Mack earns $62,000 per year, and Amy earns $71,000. Each has a retirement plan valued at approximately $20,000. They recently received an offer in the mail from their mortgage lender for a mortgage life insurance policy of $190,000. Their only life insurance currently is a $20,000 cash-value survivorship joint life policy. They each would like to provide the other with support for at least five years if one of them should die.

(a) Assuming $15,000 in final expenses and $20,000 allocated to help make mortgage payments, calculate the amount of life insurance they should purchase using the needs-based approach.

Needs-Based Approach to Life Insurance
Factors Affecting Need
	Amy	Mack
Final-expense needs
Income-replacement needs (time value of money calculation)	N = 5 I/Y = 3 PV = CPT PMT = 71,000 x 0.75 FV = 0	N = 5 I/Y = 3 PV = CPT PMT = 62,000 x 0.75 FV = 0
Readjustment period needs
Debt-repayment needs
College-expense needs
Other special needs: Mortgage payments
Subtotal - Needs:
Government benefits
Current insurance assets: Home Life insurance cash value Retirement plan
Subtotal (Benefits and Assets):
Life insurance needed: