$3.$ How much life insurance do you need? Calculating resources$-$ Part $2$

Hubert and Kate Rossi have completed Step $1$ of their needs analysis worksheet and determined that they need $$2,418,000$ to maintain the projected lifestyle of Kate $($age $38)$ and their two children $($ages $8$ and $10)$ in the event of Hubert$$s $($the primary earner$$s$)$ death. The Rossis also have certain financial resources available after Hubert$$s death, however, so their life insurance needs are lower than this amount.

If Hubert dies, Kate will be eligible to receive Social Security survivors$$ benefits$$approximately $$3,800$ a month $($$$45,600$ a year$)$ until the youngest child graduates from high school in $10$ years. After the children leave home, Kate will be able to work full$-$time and earn an estimated $$38,000$ a year $($after taxes$)$ until she retires at age $65.$ After Kate turns $65,$ she$$ll receive approximately $$3,200$ a month $($$$38,400$ a year$)$ from her own Social Security and retirement benefits. The life expectancy for a woman within Kate$$s demographic is $87.$ The couple has also saved $$60,000$ in a mutual fund, and Hubert$$s employer provides him a $$100,000$ life insurance policy.

Using this information, complete Step $2$ of the needs analysis worksheet to estimate their total financial resources available after death. $($Note: If the value of a certain entry is zero, be sure to enter $0$ to receive credit.$)$

Life Insurance Needs Analysis Worksheet $($Part $2)$

Step $2$: Financial Resources Available After Death

$1.$ Income

Period $1$ Period $2$ Period $3$

a$.$ Annual Social Security survivors$$ benefits $$45,600$ $$0$ $$0$

b$.$ Surviving spouse$$s annual income $$0$

$

$$0$

c$.$ Other annual pensions and Social Security benefits $$0$ $$0$ $$38,400$

d$.$ Annual income $(1$a $+1$b $+1$c$)$ $$45,600$

$

$

e$.$ Number of years in time period $101722$

f$.$ Total period income $(1$d x $1$e$)$ $$456,000$

$

$

g$.$ Total income $$1,946,800$

$2.$ Savings and investments

$

$3.$ Other life insurance

$

$4.$ Other resources $$0$

Total financial resources available $(1$g $+2+3+4)$: $$2,106,800$

Finally, to determine the value of life insurance Hubert and Kate should purchase, complete Step $3$ of the needs analysis method by subtracting the total financial resources available from the total financial resources needed.

Step $3$: Additional Life Insurance Needed

Total financial resources needed $($from Step $1)$ $$2,418,000$

Total financial resources available $($from Step $2)$ $$2,106,800$

Additional life insurance needed:

$

True or False: Alternatively, the Rossis could have estimated their life insurance needs using the multiple$-$of$-$earnings method, a less complicated but less accurate method than the needs analysis.

False

True