Paolo and Sharon Ferrari have completed Step $1$ of their needs analysis worksheet and determined that they need $$3,522,000$ to maintain the

projected lifestyle of Sharon $($age $38)$ and their two children $($ages $8$ and $10)$ in the event of Paolo's $($the primary earner's$)$ death. The Ferraris also

have certain financial resources available after Paolo's death, however, so their life insurance needs are lower than this amount.

If Paolo dies, Sharon will be eligible to receive Social Security survivors' benefits$-$approximately $$3,800$ a month $($ $$45,600$ a year$)$ until the youngest

child graduates from high school in $10$ years. After the children leave home, Sharon will be able to work full$-$time and earn an estimated $$38,000$ a

year $($after taxes$)$ until she retires at age $65.$ After Sharon turns $65,$ she'll receive approximately $$3,200$ a month $($ $$38,400$ a year$)$ from her own

Social Security and retirement benefits. The life expectancy for a woman within Sharon's demographic is $87.$ The couple has also saved $$60,000$ in a

mutual fund, and Paolo's employer provides him a $$100,000$ life insurance policy.

Using this information, complete Step $2$ of the needs analysis worksheet to estimate their total financial resources available after death. $($Note: If the

value of a certain entry is zero, be sure to enter $"0"$ to receive credit.$)$

Life Insurance Needs Analysis Worksheet $($Part $2)$

Step $2$: Financial Resources Available After Death

Income

a$.$ Annual Social Security survivors' benefits

b$.$ Surviving spouse's annual income

c$.$ Other annual pensions and Social Security benefits

d$.$ Annual income $(1a+1b+1c)$

e$.$ Number of years in time period

f$.$ Total period income $(1d1e$

g$.$ Total income

Savings and investments

Other life insurance

Other resources

Total financial resources available $(1g+2+3+4)$ :

Period $1$

$$45,600$

$$0$

$$0$

$$45,600$

$10$

$17$

$$456,000$

$

$22$

$$38,400$

$22$

$$1,946,800$

$

$

$$0$

$$2,106,800$

Finally, to determine the value of life insurance Paolo and Sharon should purchase, complete Step $3$ of the needs analysis method by subtracting the

total financial resources available from the total financial resources needed.

Step $3$: Additional Life Insurance Needed

Total financial resources needed $($from Step $1)$ $$3,522,000$

Total financial resources available $($from Step $2)$ $$2,106,800$

Additional life insurance needed:

True or False: Alternatively, the Ferraris could have estimated their life insurance needs using the multiple$-$of$-$earnings method, a more complicated

but more accurate method than the needs analysis.

True

False