Question
Katie Holt is a 72-year-old widow who has recently been diagnosed with Alzheimer's disease. She has limited financial assets of her own and has been
Katie Holt is a 72-year-old widow who has recently been diagnosed with Alzheimer's disease. She has limited financial assets of her own and has been living with her daughter Laurie for 2 years. Her only income is $1,000 a month in Social Security survivor's benefits. Laurie wants to make sure her mother will be taken care of if Laurie should die. Laurie, 40, is single and earns $70,000 a year as a human resources manager for a small manufacturing firm. She owns a condo with a current market value of $80,000 and has a $42,000 mortgage. Other debts include a $3,500 auto loan and $500 in various credit card balances. Her 401(k) plan has a current balance of $25,500, and she keeps $11,500 in a money market account for emergencies. After talking with her mother's doctor, Laurie believes that her mother will be able to continue living independently for another 3 years. She estimates that her mother would need about $2,200 a month to cover her living expenses and medical costs during this time. After that, Laurie's mother will probably need nursing home care. Laurie calls several local nursing homes and finds that it will cost about $3,500 a month when her mother enters a nursing home. Her mother's doctor says it is difficult to estimate her mother's life expectancy but indicates that with proper care some Alzheimer's patients can live 10 years after diagnosis. Laurie also estimates that her personal final expenses would be around $8,000, and she'd like to provide a $35,000 contingency fund that would be used to pay a trusted friend to supervise her mother's care if Laurie were no longer alive. Use Worksheet 8.1 to calculate Laurie's total life insurance requirements. In your analysis, assume an incidental special need amount of $8,000.
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Recommend the type of policy she should buy. In your analysis, assume an incidental special need amount of $8,000.
| LIFE INSURANCE NEEDS ANALYSIS METHOD | ||||||||||
| Insureds Name | Date | |||||||||
| Step 1: Estimate the total economic resources needed | ||||||||||
| 1. Annual living expenses and other needs: | ||||||||||
| Period 1 | Period 2 | Period 3 | ||||||||
| a. | Monthly living expenses | $ | $ | $ | ||||||
| b. | Net yearly income needed (a 12) | $ - | $ - | $ - | ||||||
| c. | Number of years in time period | |||||||||
| d. | Total living need per time period (b c) | $ - | $ - | $ - | ||||||
| TOTAL LIVING EXPENSES (add line d for each period): | $ - | |||||||||
| 2. Special needs | ||||||||||
| a. | Spouse education fund | $ | ||||||||
| b. | Childrens college fund | $ | ||||||||
| c. | Other needs | $ | ||||||||
| 3. Final expenses (funeral, estate costs, etc.) | $ | |||||||||
| 4. Debt liquidation | ||||||||||
| a. | House mortgage | $ | $ | $ | ||||||
| b. | Other loans | |||||||||
| c. | Total debt (4 a + 4 b) | $ - | ||||||||
| 5. Other financial needs | $ | |||||||||
| TOTAL INCOME NEEDS (add right column) | $ - | |||||||||
| Step 2: Financial resources available after death | ||||||||||
| 1. Income | ||||||||||
| Period 1 | Period 2 | Period 3 | ||||||||
| a. | Annual Social Security survivor benefits | $ | $ | |||||||
| b. | Surviving spouses annual income | |||||||||
| c. | Other annual pensions and Soc. Sec. benefits | |||||||||
| d. | Annual income | $ - | $ - | $ - | ||||||
| e. | Number of years in time period | 0 | 0 | 0 | ||||||
| f. | Total period income (d e) | $ - | $ - | $ - | ||||||
| g. TOTAL INCOME | $ - | |||||||||
| 2. | Savings and investments | $ | ||||||||
| 3. | Other life insurance | $ | ||||||||
| 4. | Other resources | $ | ||||||||
| TOTAL RESOURCES AVAILABLE (1g + 2 + 3 + 4) | $ - | |||||||||
| Step 3: Subtract available resources (Step 2) from the amount needed (Step 1) | ||||||||||
| Step 1: Total income needs | $ - | |||||||||
| Step 2: Available resources | $ - | |||||||||
| ADDITIONAL LIFE INSURANCE NEEDED | $ - | |||||||||
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