Jorge and Daniella Martinez, 30 and 35, are considering the purchase of life insurance. Jorge doesnt have any coverage, whereas Daniella has a $147,000 group policy at work. The Martinezes have two young children, ages 3 and 5. Jorge earns $28,000 annually from a part-time, home-based business. Daniellas annual salary is $54,000. From their income, they save $7,300 a year. The rest goes for expenses. The couple estimates that the children will be financially dependent, except for college costs, for about another 15 years. Once the children are in college, Jorge assumes their annual expenses will be $59,596.

In preparation for a visit with their insurance agent, the Martinezes have estimated the following expenses if Daniella were to die:

They also anticipate, should Daniella die, that Jorge will receive $7,900 a year in Social Security survivors benefits until the youngest child turns 18 and $5,000 annually in pension benefits until Jorge turns 80. Jorge projects his gross annual income to be $41,000 after his business expansion. Once the children are self-supporting, Jorge wants to plan a spousal life incomethat is, funds to make up the difference between his income and pension benefits and his expensesfor 15 more years, from age 45 to age 60. Lastly, he wants to plan on $32,000 a year in retirement income for another 20 years, from age 60 to age 80. He anticipates receiving a 5 percent after-tax, after-inflation return on their investments.

To date, the Martinezes have accumulated a total of $107,000 of assets, not including $44,000 of home equity. Their assets include $10,000 in an emergency fund, $12,000 in IRA funds for Jorge, $52,000 in other investments, and $53,000 in Daniellas 401(k) plan through her employer.

Questions:

1. What method should the Martinezes use to determine how much insurance they need?

2. Should Jorge purchase an insurance policy? Why or why not? If so, what type of policy would you recommend for Jorge?

3. What type of life insurance policy would you recommend that Daniella purchase?

4. What will happen to Daniellas group life insurance if she leaves her present job?

5. What could happen to the Martinezes children if Daniella or Jorge should die without adequate life insurance coverage?

6. Should the Martinezes name the children as life insurance beneficiaries?

7. Which life insurance riders might the Martinezes select when purchasing a policy?

8. Since they will make a concerted effort to become informed about life insurance, should the Martinezes also purchase life insurance on the children rather than wait until later when they would have to reeducate themselves for life insurance shopping?

\begin{tabular}{|l|l|} \hline Immediate needs at death & $26,000 \\ \hline Outstanding debt (including mortgage repayment) & $88,000 \\ \hline Transitional funds for Jorge to expand his business to fully support the family & $14,000 \\ \hline College expenses for their two children & $204,000 \\ \hline \end{tabular}