3. How much life insurance do you need? Calculating resources - Part 2 Aa Aa Susan and Steve Murphy have completed Step 1 of their needs analysis worksheet and determined that they need $2,745,000 to maintain the projected lifestyle of Steve (age 41) and their two children (ages 7 and 11) in the event of Susan's (the primary earner's) death. The Murphys also have certain financial resources available after Susan's death, however, so their life insurance needs are lower than this amount. If Susan dies, Steve 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 9 years. After the children leave home, Steve will be able to work full-time and earn an estimated $38,000 a year after taxes) until he retires at age 65. After Steve turns 65, he'll receive approximately $3,200 a month ($38,400 a year) from his own Social Security and retirement benefits. The life expectancy for a man within Steve's demographic is 80. The couple has also saved $42,300 in a mutual fund, and Susan's employer provides her 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 "O" to receive credit.) Life Insurance Needs Analysis Worksheet (Part 2) Period 2 Period 3 a. $ $ $ $ $ c. $ $ Step 2: Financial Resources Available After Death 1. Income Period 1 Annual Social Security survivors' benefits b. Surviving spouse's annual income Other annual pensions and Social Security benefits d. Annual income (1a + 1b + 1c) e. Number of years in time period 9 f. Total period income (10 x 1e) g. Total income 2. Savings and investments 3. Other life insurance 4. Other resources Total Financial Resources Available (19 + 2 + 3 + 4): $ $ $ 15 15 $ $ $ $1,556,400 $1,698,700 Finally, to determine the value of life insurance Steve and Susan 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) Total Financial Resources Available (from Step 2) $2,745,000 $1,698,700 Additional Life Insurance Needed: True or False: Alternatively, the Murphys 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 3. How much life insurance do you need? Calculating resources - Part 2 Aa Aa Susan and Steve Murphy have completed Step 1 of their needs analysis worksheet and determined that they need $2,745,000 to maintain the projected lifestyle of Steve (age 41) and their two children (ages 7 and 11) in the event of Susan's (the primary earner's) death. The Murphys also have certain financial resources available after Susan's death, however, so their life insurance needs are lower than this amount. If Susan dies, Steve 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 9 years. After the children leave home, Steve will be able to work full-time and earn an estimated $38,000 a year after taxes) until he retires at age 65. After Steve turns 65, he'll receive approximately $3,200 a month ($38,400 a year) from his own Social Security and retirement benefits. The life expectancy for a man within Steve's demographic is 80. The couple has also saved $42,300 in a mutual fund, and Susan's employer provides her 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 "O" to receive credit.) Life Insurance Needs Analysis Worksheet (Part 2) Period 2 Period 3 a. $ $ $ $ $ c. $ $ Step 2: Financial Resources Available After Death 1. Income Period 1 Annual Social Security survivors' benefits b. Surviving spouse's annual income Other annual pensions and Social Security benefits d. Annual income (1a + 1b + 1c) e. Number of years in time period 9 f. Total period income (10 x 1e) g. Total income 2. Savings and investments 3. Other life insurance 4. Other resources Total Financial Resources Available (19 + 2 + 3 + 4): $ $ $ 15 15 $ $ $ $1,556,400 $1,698,700 Finally, to determine the value of life insurance Steve and Susan 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) Total Financial Resources Available (from Step 2) $2,745,000 $1,698,700 Additional Life Insurance Needed: True or False: Alternatively, the Murphys 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