Do the Math 12-2 Life Insurance Needs for a Young Married Couple
Amy and Mack Holly from Rapid City, South Dakota, have been married for three years. They recently bought a home costing $212,000 using a $190,000 mortgage. They have no other debts. Mack earns $63,000 per year, and Amy earns $76,000. Each has a retirement plan valued at approximately $17,000. They recently received an offer in the mail from their mortgage lender for a mortgage life insurance policy of $190,000. Their only life insurance currently is a $19,000 cash-value survivorship joint life policy. They each would like to provide the other with support for at least five years if one of them should die.
-
Assuming $10,000 in final expenses and $20,000 allocated to help make mortgage payments, calculate the amount of life insurance they should purchase using the needs-based approach. Also assume that both Mack and Amy would replace 75 percent of their individual current income for five years. Use a 4 percent after-tax, after-inflation rate of return for your calculations. (Use Appendix B.) Do not round your intermediate calculations. Round your answers to the nearest dollar.
-
Appendix B.1 Estimates of Social Security Benefits for the Three Major Social Security Programs Present Annual Earnings $35,000 $50,000 $65,000 $80,000 $95,000 $120,000 Monthly Retirement Benefits at Age 67 in Today's Dollars Per month $ 1,480 $ 1,890 $ 2,260 $ 2,640 $ 2,940 Per year $17,760 $ 27,120 $22,680 45% $ 2,450 $ 29,400 37% $ 31,680 33% $ 35,280 29% 51% 42% As a percentage of income Monthly Retirement Benefits at Age 67 in Future Dollars Per Month $ 6,170 $ 9,550 $ 12,440 $ 7,860 $94,320 $ 10,410 $124,920 $ 11,200 $134,400 $74,040 $114,600 $149,280 $ 1,690 $ 2,720 $ 1,330 $15,960 46% $ 2,040 $ 24,480 38% $ 2,280 $ 27,360 $20,280 $ 2,460 $ 29,520 31% $ 32,640 29% 41% 34% $ 2,000 $ 2,530 $ 3,060 $ 4,080 $30,360 Per Year Monthly Disability Benefits if You Became Disabled in 2018 Individual benefit per month Individual benefit per year As a percentage of income Maximum family benefit per month Maximum family benefit per year As a percentage of income Monthly Survivor's Benefits if You Died in 2018 Individual benefit per month Individual benefit per year As a percentage of income Maximum family benefit per month Maximum family benefit per year As a percentage of income $24,000 69% $ 36,720 56% $ 3,420 $ 41,040 51% $ 3,690 $ 44,280 47% $ 48,960 41% 61% $ 1,560 $1,750 $ 1,890 $ 1,040 $12,480 $ 1,310 $15,720 $ 18,720 $ 22,680 $ 21,000 26% $ 2,090 $ 25,080 21% 36% 31% 29% 24% $ 3,210 $ 4,870 $ 2,380 $28,560 82% $38,520 77% $ 3,710 $ 44,520 68% $ 4,090 $ 49,080 61% $ 4,700 $ 52,800 56% $ 58,440 49% Appendix B.1 Estimates of Social Security Benefits for the Three Major Social Security Programs Present Annual Earnings $35,000 $50,000 $65,000 $80,000 $95,000 $120,000 Monthly Retirement Benefits at Age 67 in Today's Dollars Per month $ 1,480 $ 1,890 $ 2,260 $ 2,640 $ 2,940 Per year $17,760 $ 27,120 $22,680 45% $ 2,450 $ 29,400 37% $ 31,680 33% $ 35,280 29% 51% 42% As a percentage of income Monthly Retirement Benefits at Age 67 in Future Dollars Per Month $ 6,170 $ 9,550 $ 12,440 $ 7,860 $94,320 $ 10,410 $124,920 $ 11,200 $134,400 $74,040 $114,600 $149,280 $ 1,690 $ 2,720 $ 1,330 $15,960 46% $ 2,040 $ 24,480 38% $ 2,280 $ 27,360 $20,280 $ 2,460 $ 29,520 31% $ 32,640 29% 41% 34% $ 2,000 $ 2,530 $ 3,060 $ 4,080 $30,360 Per Year Monthly Disability Benefits if You Became Disabled in 2018 Individual benefit per month Individual benefit per year As a percentage of income Maximum family benefit per month Maximum family benefit per year As a percentage of income Monthly Survivor's Benefits if You Died in 2018 Individual benefit per month Individual benefit per year As a percentage of income Maximum family benefit per month Maximum family benefit per year As a percentage of income $24,000 69% $ 36,720 56% $ 3,420 $ 41,040 51% $ 3,690 $ 44,280 47% $ 48,960 41% 61% $ 1,560 $1,750 $ 1,890 $ 1,040 $12,480 $ 1,310 $15,720 $ 18,720 $ 22,680 $ 21,000 26% $ 2,090 $ 25,080 21% 36% 31% 29% 24% $ 3,210 $ 4,870 $ 2,380 $28,560 82% $38,520 77% $ 3,710 $ 44,520 68% $ 4,090 $ 49,080 61% $ 4,700 $ 52,800 56% $ 58,440 49%
