Joetta Hernandez is a single parent with two children and earns $45,000 a year. Her employer's group life insurance policy would pay 2.5 times her salary. She also has $60,000 saved in a 401(k) plan, $5,000 in mutual funds, and a $3,000 certificate of deposit. She wants to purchase term life insurance for 15 years, until her youngest child is self-supporting. She is not concerned about her outstanding mortgage, as the children would live with her sister in the event of Joetta's death. Assuming she can receive a 4 percent after-tax, after-inflation return on insurance proceeds, use the earnings multiple method to calculate her insurance need. How much more insurance does Joetta need to buy? What other information would you need to know to use the needs approach to calculate Joetta's insurance coverage? Click on the table icon to view the PVIFA table Assuming she can receive a 4 percent after-tax, after-inflation return on insurance proceeds and using the earnings multiple method, Joetta's insurance need is $ (Round to the nearest dollar.) How much more insurance does Joetta need to buy? What other information would you need to know to use the needs approach to calculate Joetta's insurance coverage? (Select the best choice below.) A. Joetta needs to buy $482,742 of insurance. Since Joetta is a single parent, some needs included in the needs approach method are not relevant. To use this method, Joetta would need specific information on projected amounts for cleanup funds, debt elimination funds excluding the mortgage, educational expenses for the children, and the availability of Social Security to assist with dependency expenses. Joetta can also consider the effect of existing assets to reduce the amount of insurance needed. O B. Joetta needs to buy $257,742 of insurance. Since Joetta is a single parent, some needs included in the needs approach method are not relevant. To use this method, Joetta would need specific information on projected amounts for cleanup funds, debt elimination funds excluding the mortgage, educational expenses for the children, and the availability of Social Security to assist with dependency expenses. Joetta can also consider the effect of existing assets to reduce the amount of insurance needed. 1 2 3 4 5 6 7 8 9 10 11 1% 0.990 1.970 2.941 3.902 4.853 5.795 6.728 7.652 8.566 9.471 10.368 11.255 12.134 13.004 13.865 14.718 15.562 16.398 17.226 18.046 18.857 19.660 20.456 2% 0.980 1.942 2.884 3.808 4.713 5.601 6.472 7.325 8.162 8.983 9.787 10.575 11.348 12.106 12.849 13.578 14.292 14.992 15.678 16.351 17.011 17.658 18.292 Present Value 3% 4% 0.971 0.962 1.913 1.886 2.829 2.775 3.717 3.630 4.580 4.452 5.417 5.242 6.230 6.002 7.020 6.733 7.786 7.435 8.530 8.111 9.253 8.760 9.954 9.385 10.635 9.986 11.296 10.563 11.938 11.118 12.561 11.652 13.166 12.166 13.754 12.659 14.324 13.134 14.877 13.590 15.415 14.029 15.937 14.451 16.444 14.857 an Annuity of $1 (PVIFA) 5% 6% 7% 0.952 0.943 0.935 1.859 1.833 1.808 2.723 2.673 2.624 3.546 3.465 3.387 4.329 4.212 4.100 5.076 4.917 4.767 5.786 5.582 5.389 6.463 6.210 5.971 7.108 6.802 6.515 7.722 7.360 7.024 8.306 7.887 7.499 8.863 8.384 7.943 9.394 8.853 8.358 9.899 9.295 8.745 10.380 9.712 9.108 10.838 10.106 9.447 11.274 10.477 9.763 11.690 10.828 10.059 12.085 11.158 10.336 12.462 11.470 10.594 12.821 11.764 10.836 13.163 12.042 11.061 13.489 12.303 11.272 8% 0.926 1.783 2.577 3.312 3.993 4.623 5.206 5.747 6.247 6.710 7.139 7.536 7.904 8.244 8.559 8.851 9.122 9.372 9.604 9.818 10.017 10.201 10.371 9% 0.917 1.759 2.531 3.240 3.890 4.486 5.033 5.535 5.995 6.418 6.805 7.161 7.487 7.786 8.061 8.313 8.544 8.756 8.950 9.129 9.292 9.442 9.580 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 6.495 6.814 7.103 7.367 7.606 7.824 8.022 8.201 8.365 8.514 8.649 8.772 8.883 12 13 14 15 16 17 18 19 20 21 22 23
