Please calculate the amount of additional life insurance Pat should have based on the needs approach. Please show all calculations, and use your own work. Thanks!
Pat and Mandy are married and have a son, Steve, age 8. Mandy, age 29. earns $40.000 annually from her job. Pat, age 31, earns $50,000 annually from his job. Assume that Pat will die before Mandy. The family wants to ensure that they have adequate life insurance on Pat to cover their cash and income needs of Pat dies. Hence, they want to determine if they should purchase additional life insurance on Pat to cover these needs using Needs Approach The tables below provide figures on their: 1) cash needs; 2) present insurance and financial assets; 3) income needs; and 4) income that the family will receive if no additional life insurance is purchased. Use the values in these tables to determine how much, if any, additional life insurance the family should purchase on Patto cover their needs. In your answer, calculate and show the components of any additional life insurance needed in terms of cash needs and income needs and the total amount of additional life insurance needed. This exercise assumes that 1) Pat dies immediately2) Mandy continues to work if Pat dies. However, her earnings are not enough to meet their needs. So, the numbers provided in the table are net off her earnings, which means all the items provided below need to be included in your calculation: 3) Mandy plans to retire at age 65, and 4) the life insurance proceeds are invested at an interest rate equal to the rate of inflation so you do not have to worry about time-value of money issues). Cash Needs: Estate Clearance Mortgage Redemption Emergency fund Educational Fund $15,000 $150,000 $20,000 $100,000 Present Insurance and Fin Whole Life Insurance Investments/Savings $150,000 $10,000 Income Needs: Readjustment Period Dependency Period Blackout Period Mandy's Retirement Period $5,000 monthly for 2 years $5,000 monthly for 8 years $3,500 monthly for 28 years $3,500 monthly for 25 years Expected Income from Sources Other than Life Insurance: Readjustment Period Dependency Period $3,500 monthly for 2 years $3,500 monthly for 8 years $3,000 monthly for 28 years $2,000 monthly for 25 years Pat and Mandy are married and have a son, Steve, age 8. Mandy, age 29. earns $40.000 annually from her job. Pat, age 31, earns $50,000 annually from his job. Assume that Pat will die before Mandy. The family wants to ensure that they have adequate life insurance on Pat to cover their cash and income needs of Pat dies. Hence, they want to determine if they should purchase additional life insurance on Pat to cover these needs using Needs Approach The tables below provide figures on their: 1) cash needs; 2) present insurance and financial assets; 3) income needs; and 4) income that the family will receive if no additional life insurance is purchased. Use the values in these tables to determine how much, if any, additional life insurance the family should purchase on Patto cover their needs. In your answer, calculate and show the components of any additional life insurance needed in terms of cash needs and income needs and the total amount of additional life insurance needed. This exercise assumes that 1) Pat dies immediately2) Mandy continues to work if Pat dies. However, her earnings are not enough to meet their needs. So, the numbers provided in the table are net off her earnings, which means all the items provided below need to be included in your calculation: 3) Mandy plans to retire at age 65, and 4) the life insurance proceeds are invested at an interest rate equal to the rate of inflation so you do not have to worry about time-value of money issues). Cash Needs: Estate Clearance Mortgage Redemption Emergency fund Educational Fund $15,000 $150,000 $20,000 $100,000 Present Insurance and Fin Whole Life Insurance Investments/Savings $150,000 $10,000 Income Needs: Readjustment Period Dependency Period Blackout Period Mandy's Retirement Period $5,000 monthly for 2 years $5,000 monthly for 8 years $3,500 monthly for 28 years $3,500 monthly for 25 years Expected Income from Sources Other than Life Insurance: Readjustment Period Dependency Period $3,500 monthly for 2 years $3,500 monthly for 8 years $3,000 monthly for 28 years $2,000 monthly for 25 years
