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Figure 12-1 David and Karen are a young couple with two small children, Jaden (age four) and Noemi (age two). Karen is a nurse for a private hospital while David is a lawyer. Karen's employer has just circulated sployer benefit information, so David and Karen believe this is a good time to evaluate their life insurance needs. They have listed the financial information they believe is relevant Current life insurance (David) Current life insurance (Karen Assets available for living expenses Present value of Social Security benefits if David dies Present value of Social Security benefits if Karen dies David's income Karen's income Percent of income that needs to be replaced Projected final expenses Projected readjustment period needs Projected debt-repayment needs Projected college-expenses Number of years income replacement is needed Assumed rate of return on invested funds Appropriate interest rate factor $ 100,000 $0 $200,000 $225,000 $ 85,000 $ 90,000 100 percent SI0.000 $7.000 S 25.000 S 80.000 5 percent 12.5 41. Using a 7-year multiple-of-earings approach, how much additional life insurance is needed on Karen's life? a) $630,000 b) $530,000 c) $350,000 d) $100,000 42. How much life insurance is needed on David's life using his income and the 7-year multiple-of-earnings approach? a) SS95.000 b) $495.100 c) $315.000 d) $100,000 43. David and Karen decide to purchase a $500,000 policy on David and a $500,000 policy on Karen. How much would these policies cost if they were $0.80 per $1,000 of coverage for Tina and $0.75 per $1,000 for David? a) $1,650 b) $775 c) $400 d) $375 44. Karen enjoys managing investments and believes that she could get a higher yield on the proceeds from David's life insurance than the insurance company would pay. Which settlement option should be selected for David's policy in the event of his death? a) Interest income b) Lump sum c) Income for a specific period d) Income for life 45. David is concerned about providing for his family in the absence of Karen the breadwinner and wants the life insurance proceeds from Karen's life insurance to last for the longest period of time. Which settlement option should be selected for Karen's policy in the event of her death? a) Interest income b) Lump sum c) Income for a specific period d) Income for life