Question
Jalil and Aluna Ngumi are 37 years old and have one daughter, age 5. Jalil is the primary earner, making $87,000 per year. Aluna does
Jalil and Aluna Ngumi are 37 years old and have one daughter, age 5. Jalil is the primary earner, making $87,000 per year. Aluna does not currently work. The Ngumis have decided to use the needs analysis method to calculate the value of a life insurance policy that would provide for Aluna and their daughter in the event of Jalils death.
Jalil and Aluna estimate that while their daughter is still living at home, monthly living expenses for Aluna and their child will be about $3,700 (in current dollars). After their daughter leaves for college in 13 years, Aluna will need a monthly income of $3,100 until she retires at age 65. The Ngumis estimate Alunas living expenses after 65 will only be $2,700 a month. The life expectancy of a woman Alunas age is 87 years, so the Ngumi family calculates that Aluna will spend about 22 years in retirement.
Using this information, complete the first portion of the needs analysis worksheet to estimate their total living expenses.
Life Insurance Needs Analysis Worksheet
Name of insured | Jalil and Aluna Ngumi | Date | July 31, 2015 | ||
Step 1: Financial resources needed after death | |||||
1. Annual living expenses and other needs | |||||
Period 1 | Period 2 | Period 3 | |||
a. | Monthly living expenses | $3,700 |
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b. | Net yearly income needed (1a x 12) |
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c. | Number of years in time period | 13 | 15 | 22 | |
d. | Total living needs per time period (1b x 1c) |
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Total living expenses (add Line 1d for each period to check your total): | $1,848,000 |
In addition to these monthly expenses, other future outlays must be accounted for. Before they had a child, Aluna worked as a software engineer, but her knowledge and skills are now somewhat outdated. Therefore, they include $30,000 for Aluna to go back to school. Additionally, Jalil and Aluna want to create a college fund of $35,000 to fund their childs college education. They estimate that final expenses (funeral costs and estate taxes) will amount to $12,000. Finally, they have taken out a loan for a business venture of $32,200 and a credit card balance of $1,200. Because the Ngumis are renters, they have no outstanding mortgage.
Using this information, complete the next portion of Step 1 to determine the total financial resources needed.
2. Special needs | ||
a. | Spouses education fund |
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b. | Childs college fund |
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c. | Other needs | $0 |
3. | Final expenses (funeral costs and estate taxes) |
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4. | Debt liquidation | |
a. | House mortgage |
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b. | Other loans |
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c. | Total debt (4a + 4b) |
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5. | Other financial needs | $0 |
Total financial resources needed (add right-hand column plus the Total Living Expenses you calculated): |
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The second half of the needs analysis worksheet is not shown on this page. To complete the worksheet and determine the value of the life insurance policy the Ngumis should purchase, they need to factor in additional information.
True or False: The value of Jalil and Alunas other savings and investments should be accounted for in the remaining portion of the form.
True
False
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