Recall that Daves salary after taxes is $40,000. He wants to ensure that the family would have insurance benefits that could provide $40,000 for the next 15 years. By the end of this period, the children will have completed college. Dave also wants to add an additional $300,000 of insurance coverage to provide support for Sharon through her retirement years since they have not saved much money for retirement. 1. Determine the amount of insurance Dave would need in order to provide his family with $40,000 of income per year (for 15 years) in the event of his death. Youll need to calculate the present value of an annuity of $40,000 for 15 years. Assume that the insurance payment could be invested to earn 3% interest over time. Annual amount of income desired $40,000 Number of years income is desired 15 Annual interest rate 3% Present value (from financial calculator you learned to use in Chapter 3) 491842.9256 Hints for calculation: PMT = $40,000, n = 15, I/Y = 3, solve for PV THIS is the amount of insurance needed to cover the annual income desired in the event of Daves death. 2. Now, add the $300,000 that Dave would also like to provide as a one-time amount to determine the total amount of insurance to purchase: Additional $300,000 to add to retirement savings $300,000 Amount to provide $40,000 per year for 15 years (from part 1 above) 491842.9256 Total amount of insurance coverage needed 791842.925 3. Given the total amount of insurance coverage needed from part 2 and Daves present age (30 years old), estimate the premium that the Sampsons would pay using an insurance web site that provides quotes. Go go to https://www.jrcinsurancegroup.com/life-insurance-rates-by-age/ and scroll down the page to the Quick Rates Guide to find the relevant quotes for a 15-year policy.** Note that the sample rates are based on the insured person achieving a Preferred Plus rating by being in excellent health and a non-smoker. Be sure to use the correct male or female tab while answering the following questions. For a 30-year old male, what is the estimated monthly premium for a $750,000 policy? (Click on the + sign at the right of the 30-39 years old row). For a 30-year old male, what is the estimated monthly premium for a $1,000,000 policy? How much more expensive is it on an ANNUAL basis to purchase the $1,000,000 policy? (You need to calculation this). Does is make sense for Dave to round up to the $1,000,000 policy? Why or why not? Out of curiosity, what is the monthly premium for a 30-year old female for a $750,000 policy? Why is there a difference in the policy premiums between males and females? The following questions are to illustrate how the cost of insurance changes with age. Using the website above, what are the estimated premiums for a $1,000,000 policy for a: 30-year-old male? 35-year-old male? 40-year-old male? 45-year-old male? Comment on the increase in premiums as the insured ages. Is the increase steady? **NOTE: I chose this web source simply because it doesnt require you to provide an email address to receive quotes. I have no knowledge of this insurance group and am NOT promoting it in any way. 4. Although the rates above are for a non-smoker, Dave is actually a social smoker. Because he only smokes occasionally, he would like to omit this information from his life insurance application. Advise Dave on this possible course of action. Why would he even be thinking of omitting this information? Should he? Why or why not? 5. The Sampsons are only investigating policies on Daves life, as he is the familys breadwinner. Do you think they should also look into a life insurance policy on Sharons life, even though she is not the breadwinner? Why or why not? (Consider what Sharon does provide to the family and how those contributions would be affected if she were to die).