LIFE INSURANCE NEEDS ANALYSIS METHOD Insured's Name Eva and Logan Roberts Date April 12, 2000 Step 1: Financial resources needed after death 1. Annual living expenses and other needs Period 1 Period 2 Period 3 Monthly living expenses S 3,500 $ 2,000 $ 2,750 Net yearly incorne needed $ 42,000 $ 36,000 $ 33,000 la x 12) C. Number of years in time period 121822 d. Total living need per time period (b x c) $504,000 $648,000 $726,000 TOTAL LIVING EXPENSES (add line d for each period) $ 1,878,000 $ 25.000 100.000 $ 15,000 2. Special needs a. Spouse education fund b. Children's college fund c. Other needs 3. Final expenses (funeral, estate costs, etc.) 4. Debt liquidation a. House mortgage $ 150,000 b. Other loans $ 5,000 c. Total debt (4a + 4b) 5. Other financial needs TOTAL FINANCIAL RESOURCES NEEDED (add right column) $ 155,000 $ 2,173,000 Period 3 $ 27,000 Step 2: Financial resources available after death 1. Income Period 1 Period 2 Annual Social Security survivor's 538,400 benefits Surviving spouse's annual income $ 35,000 Other annual pensions and Social Security benefits Annual income S $8,400 $ 55,000 Number of years in time period 1 1 18 Total period income (dx el T$ 400,800 $630,000 TOTAL INCOME Savings and investments Other life insurance Other resources TOTAL FINANCIAL RESOURCES AVAILABLE (Total income + 2 + 3 + 4) S 27,000 22 $594,000 $1,684,800 $ 65,000 $ 100.000 $ 1.849.800 Step 3: Additional Life Insurance needed Step 1: Total financial resources needed Step 2: Total financial resources available $2,173,000 $2.849.goo ADDITIONAL LIFE INSURANCE NEEDED $ 323,200 Homework, Problem 3, page 225 Estimating life insurance needs. Use Worksheet 8.1. Sophie Lopez 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 Felicity for two years. Her income is $850 a month in Social Security survivor's benefits. Felicity wants to make sure that her mother will be taken care of if Felicity should die prematurely. Felicity, 40, is single and earns $55,000 a year as a human resources manager for a small manufacturing firm. She owns a condo with a current market value of $100,000 and has a $70,000 mortgage. Other debts include a $5,000 auto loan and $500 in various credit card balances. Her 401(k) plan has a current balance of $24,500, and she keeps $7,500 in a money market account for emergencies. After talking with her mother's doctor, Felicity believes that her mother will be able to continue living independently for another two to three years. She estimates that her mother would need about $2,000 a month to cover her living expenses and medical costs during this time. After that, Felicity's mother will probably need nursing home care. Felicity calls several local nursing homes and finds that it will cost about $5,000 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 or more years after diagnosis. Felicity also estimates that her own personal final expenses would be around $5,000, and she'd like to provide a $25,000 contingency fund that would be used to pay a trusted friend to supervise her mother's care if Felicity were no longer alive. Use Worksheet 8.1 to calculate Felicity's total life insurance requirements, and recommend the type of policy that she should buy. LIFE INSURANCE NEEDS ANALYSIS METHOD Insured's Name Eva and Logan Roberts Date April 12, 2000 Step 1: Financial resources needed after death 1. Annual living expenses and other needs Period 1 Period 2 Period 3 Monthly living expenses S 3,500 $ 2,000 $ 2,750 Net yearly incorne needed $ 42,000 $ 36,000 $ 33,000 la x 12) C. Number of years in time period 121822 d. Total living need per time period (b x c) $504,000 $648,000 $726,000 TOTAL LIVING EXPENSES (add line d for each period) $ 1,878,000 $ 25.000 100.000 $ 15,000 2. Special needs a. Spouse education fund b. Children's college fund c. Other needs 3. Final expenses (funeral, estate costs, etc.) 4. Debt liquidation a. House mortgage $ 150,000 b. Other loans $ 5,000 c. Total debt (4a + 4b) 5. Other financial needs TOTAL FINANCIAL RESOURCES NEEDED (add right column) $ 155,000 $ 2,173,000 Period 3 $ 27,000 Step 2: Financial resources available after death 1. Income Period 1 Period 2 Annual Social Security survivor's 538,400 benefits Surviving spouse's annual income $ 35,000 Other annual pensions and Social Security benefits Annual income S $8,400 $ 55,000 Number of years in time period 1 1 18 Total period income (dx el T$ 400,800 $630,000 TOTAL INCOME Savings and investments Other life insurance Other resources TOTAL FINANCIAL RESOURCES AVAILABLE (Total income + 2 + 3 + 4) S 27,000 22 $594,000 $1,684,800 $ 65,000 $ 100.000 $ 1.849.800 Step 3: Additional Life Insurance needed Step 1: Total financial resources needed Step 2: Total financial resources available $2,173,000 $2.849.goo ADDITIONAL LIFE INSURANCE NEEDED $ 323,200 Homework, Problem 3, page 225 Estimating life insurance needs. Use Worksheet 8.1. Sophie Lopez 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 Felicity for two years. Her income is $850 a month in Social Security survivor's benefits. Felicity wants to make sure that her mother will be taken care of if Felicity should die prematurely. Felicity, 40, is single and earns $55,000 a year as a human resources manager for a small manufacturing firm. She owns a condo with a current market value of $100,000 and has a $70,000 mortgage. Other debts include a $5,000 auto loan and $500 in various credit card balances. Her 401(k) plan has a current balance of $24,500, and she keeps $7,500 in a money market account for emergencies. After talking with her mother's doctor, Felicity believes that her mother will be able to continue living independently for another two to three years. She estimates that her mother would need about $2,000 a month to cover her living expenses and medical costs during this time. After that, Felicity's mother will probably need nursing home care. Felicity calls several local nursing homes and finds that it will cost about $5,000 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 or more years after diagnosis. Felicity also estimates that her own personal final expenses would be around $5,000, and she'd like to provide a $25,000 contingency fund that would be used to pay a trusted friend to supervise her mother's care if Felicity were no longer alive. Use Worksheet 8.1 to calculate Felicity's total life insurance requirements, and recommend the type of policy that she should buy