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a) Is Kerry's current life insurance policy adequate for the children to receive $40,000 each year if the funds could provide a return of 4%
a) Is Kerry's current life insurance policy adequate for the children to receive $40,000 each year if the funds could provide a return of 4% annually? b) If not, what additional amount of life insurance does Kerry need to meet this goal? 6. Kerry would like to provide enough life insurance for the children to receive a total of $40,000 per year for 12 years from the face value of the policy if she were to die. The $40,000 required annually is the total for both the children (not per child). Questions: a) Is Kerry's current life insurance policy adequate for the children to receive $40,000 each year if the funds could provide a return of 4% annually? b) If not, what additional amount of life insurance does Kerry need to meet this goal? Additional information, hints, and tips for completing the financial ratios: You can find her current life insurance policy listed in the case study, This is a time value problem. Remember the key questions (see the Time Value PowerPoints): (1) Is this one time" (lump sum) or "multiple times" (annuity), (2) Is it a "save for it" (FV) or "receive it" (PV)* question, and (3) Are you looking for a "larger" or "smaller" number this will determine if you multiply or divide), There are two parts to this question. First, determine the amount that Kerry needs to have in a life insurance policy if she wants to provide her kids with $40,000 a year for 12 years. If we ignore time value of money (i.e., we ignore the 4% interest earnings), she would need a policy worth $480,000 ($40,000 x 12 years - $480,000). Because we won't be ignoring the 4% interest, we know she will need something less than $480,000, but we know it will be a fairly large number. Second, compare the number she needs to have in a life insurance policy (after calculating using a time value quotient, and then compare to her current policy. Subtract the difference to find the answer for question 6b
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