Ch 08: Assignment - Insuring Your Life 3. How much life insurance do you need? Calculating resources- Part 2 Shen and Valerie Wong have completed Step 1 of their needs analysis worksheet and determined that they need $2,418,000 to maintain the projected lifestyle of Valerie (age 41) and their two children (ages 7 and 11) In the event of Shen's (the primary earner's) death. The Wongs also have certain financial resources available after Shen's death, however, so their life insurance needs are lower than this amount. If Shen dies, Valerie will be eligible to receive Social Security survivors' benefits-approximately $3,500 a month ($42,000 a year) until the youngest child graduates from high school in 9 years. After the children leave home, Valerie will be able to work full-time and earn an estimated $52,000 a year (after taxes) until she retires at age 65. After Valerie turns 65, she'll receive approximately $3,100 a month ($37,200 a year) from her own Social Security and retirement benefits. The life expectancy for a woman within Valerie's dernographic is 87. The couple has also saved $60,000 in a mutual fund, and she's employer provides him a $100,000 ufe insurance policy. Using this information, complete Step 2 or the needs analysis worksheet to estimate their total hinancial 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) Step 2: Financial Resources Available After Death 1. Income Period 1 Period 2 50 Period 3 $0 $42.000 so $0 so $0 $37,200 $42,000 S a. Annual Social Security survivors' benefits b. Surviving spouse's annual income c. Other annual pensions and Social Security benefits d. Annual income (18+ 1b + 1c) e. Number of years in time period Total period income (10 x le) 9. Total income 2. Savings and investments 3. Other life insurance 9 15 22 $378,000 $1,976,400 Period 2 Perlod 3 Period 1 $42.000 $0 $0 $0 $ $0 $0 $0 $37,200 $42,000 S 9 15 22 $378,000 $ 3. Annual Social Security survivors' benefits b. Surviving spouse's annual income c. Other annual pensions and Social Security benefits d. Annual income (1a + 1b + 1c) e. Number of years in time period f. Total period income (10 x 1e) 9. Total Income 2. Savingsland investments 3. Other life Insurance 4. Other resources Total financial resources available (19 + 2 + 3 + 4): $1,976,400 $ $0 $2,136,400 Finally, to determine the value of Nfe insurance Shen and Valerie should purchase, complete Step 3 or 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) Additional life insurance needed: $2,418,000 $2,136,400 True or False Alternatively, the Wongs could have estimated their life insurance needs using the multiple-of-earnings method, a more complicated but more accurate method than the needs analysis. True False
