Scenario: You are 30 years old with a gross annual income of $55,000. You are married with 2-year-old twin children. Your spouse is 30 years of age. You estimate that your final expenses for funeral, burial, and other expenses will be $15,000. You currently owe $185,000 on a mortgage, $25,000 on a car loan, and $20,000 in credit card debt. You would like to replace your income for 30 years, and believe that your insurance proceeds can be invested to earn a 5% return. You would also like a minimum of $60,000 for each child be placed in a college fund. You do not anticipate a need to fund a readjustment period for your spouse. You currently have a $80,000 whole life insurance policy. Two procedures may be used to estimate your life insurance requirements. The more accurate method is the It is considered the better method because it: O offers a simplified way of evaluating your potential level of need. considers all of the factors that might affect your potential level of need. Which of the following are potential financial resources that could be used to offset your family's costs and expenses after your death? Check all that apply. Existing financial assets, including your savings, investment, and retirement accounts. Government benefits, including Social Security survivors' benefits. The sale of physical assets, such as a house or a vehicle. O Health insurance benefits Now, think more about the needs-based approach to estimating your life insurance requirements. To perform this analysis, make the following assumptions and computations: When calculating your replacement income, you should base your computation on of your current annual income. This is because: according to the insurance regulators, surviving spouses don't deserve 100% of their spouses' annual income. it is the maximum amount that life insurance is permitted to pay. it is generally estimated that 25% of income is used for personal needs, and your needs won't need to be paid anymore. Therefore, your replacement-income requirement should be based on a base annual income of per year. These expected future amounts should be at a rate of for years. This produces a total estimated replacement income of (Hint: The appropriate annuity interest factor is 15.3725.) Another important element in the needs-based method involves your spouse's and family's readjustment-period needs. This item is intended to cover the costs of and any education expenses incurred by your spouse and dependents. Your readjustment-period needs are currently expected to be Your current short term debt-repayment needs are and reflect the costs of your Current Social Security benefits are detailed in the following table. Remember, that survivor benefits are paid to surviving children younger than age 18, to a surviving spouse caring for surviving children younger than age 16, and to a surviving spouse aged 60 or older. $45,000 $55,000 $75,000 Benefit Present annual income $35,000 Annual retirement benefit (at age 67 in today's dollars) $17,160 Annual individual survivor benefit 12,480 Maximum annual family benefit 30,960 $20,400 $22,800 $27,240 14,760 17,040 19,920 36,120 40,800 46,560 The table of interest factors that can be used to compute the present value of an annuity is: Interest rate Years 3% 4% 5% 6% 7% 14 10.6350 9.9856 9.3936 8.8527 8.3577 15 11.9379 11.1184 10.3797 9.7122 9.1079 16 12.5611 11.6523 10.8378 10.1059 9.4466 17 13.1661 12.1657 11.2741 10.4773 9.7632 18 13.7535 12.6593 11.6896 10.8276 10.0591 ... 20 14.8755 13.5903 12.4622 11.4699 10.5940 25 17.4131 15.6221 14.0939 12.7834 11.6536 30 19.6004 17.2920 15.3725 13.7648 12.4090 35 21.4872 18.6646 16.3742 14.4982 12.9477 Your twin's survivor benefits are currently expected to total per year for years. When they are discounted at 5% for this amount of time, using the 16-year interest annuity factor of 10.8378, they are expected to total . The computation of your spouse's survivor benefits, on the other hand, are more complex. Your spouse should expect to receive survivor benefits until your children are years of age. Given your present annual income, spousal benefits are estimated to be per year. (Hint: Don't forget that there is a maximum annual family benefit that may reduce the amount of your spouse's annual benefit.) When discounted at 5%, using the 14-year interest annuity factor of 9.3936, these spousal benefits should total According to the rules of the Social Security Administration, your spouse will experience a benefit blackout for the date on which the twins turn 18 until the spouse's 60th birthday. Your spouse will realize a Social Security blackout period that lasts for until age 60. Now use the data from your calculations above and that from your personal circumstances, to estimate the amount of life insurance your family requires using the needs-based approach. If your answer is zero, enter "0". $ Final expense needs Income replacement needs Readjustment period needs Debt-repayment needs College expense needs Other special needs Total financial need $ Less: Total government benefits Less: Current insurance assets Additional life insurance needed $ Which of the following statements regarding life insurance policies are true? Check all that apply. Once you calculate your insurance needs, you don't ever have to do it again. It is illegal for a policyholder to borrow against the accumulated cash value of their life insurance policy. Term policies have a lower cost than otherwise identical cash-value policies. A beneficiary does not have to pay taxes on the death benefit of a life insurance policy. Scenario: You are 30 years old with a gross annual income of $55,000. You are married with 2-year-old twin children. Your spouse is 30 years of age. You estimate that your final expenses for funeral, burial, and other expenses will be $15,000. You currently owe $185,000 on a mortgage, $25,000 on a car loan, and $20,000 in credit card debt. You would like to replace your income for 30 years, and believe that your insurance proceeds can be invested to earn a 5% return. You would also like a minimum of $60,000 for each child be placed in a college fund. You do not anticipate a need to fund a readjustment period for your spouse. You currently have a $80,000 whole life insurance policy. Two procedures may be used to estimate your life insurance requirements. The more accurate method is the It is considered the better method because it: O offers a simplified way of evaluating your potential level of need. considers all of the factors that might affect your potential level of need. Which of the following are potential financial resources that could be used to offset your family's costs and expenses after your death? Check all that apply. Existing financial assets, including your savings, investment, and retirement accounts. Government benefits, including Social Security survivors' benefits. The sale of physical assets, such as a house or a vehicle. O Health insurance benefits Now, think more about the needs-based approach to estimating your life insurance requirements. To perform this analysis, make the following assumptions and computations: When calculating your replacement income, you should base your computation on of your current annual income. This is because: according to the insurance regulators, surviving spouses don't deserve 100% of their spouses' annual income. it is the maximum amount that life insurance is permitted to pay. it is generally estimated that 25% of income is used for personal needs, and your needs won't need to be paid anymore. Therefore, your replacement-income requirement should be based on a base annual income of per year. These expected future amounts should be at a rate of for years. This produces a total estimated replacement income of (Hint: The appropriate annuity interest factor is 15.3725.) Another important element in the needs-based method involves your spouse's and family's readjustment-period needs. This item is intended to cover the costs of and any education expenses incurred by your spouse and dependents. Your readjustment-period needs are currently expected to be Your current short term debt-repayment needs are and reflect the costs of your Current Social Security benefits are detailed in the following table. Remember, that survivor benefits are paid to surviving children younger than age 18, to a surviving spouse caring for surviving children younger than age 16, and to a surviving spouse aged 60 or older. $45,000 $55,000 $75,000 Benefit Present annual income $35,000 Annual retirement benefit (at age 67 in today's dollars) $17,160 Annual individual survivor benefit 12,480 Maximum annual family benefit 30,960 $20,400 $22,800 $27,240 14,760 17,040 19,920 36,120 40,800 46,560 The table of interest factors that can be used to compute the present value of an annuity is: Interest rate Years 3% 4% 5% 6% 7% 14 10.6350 9.9856 9.3936 8.8527 8.3577 15 11.9379 11.1184 10.3797 9.7122 9.1079 16 12.5611 11.6523 10.8378 10.1059 9.4466 17 13.1661 12.1657 11.2741 10.4773 9.7632 18 13.7535 12.6593 11.6896 10.8276 10.0591 ... 20 14.8755 13.5903 12.4622 11.4699 10.5940 25 17.4131 15.6221 14.0939 12.7834 11.6536 30 19.6004 17.2920 15.3725 13.7648 12.4090 35 21.4872 18.6646 16.3742 14.4982 12.9477 Your twin's survivor benefits are currently expected to total per year for years. When they are discounted at 5% for this amount of time, using the 16-year interest annuity factor of 10.8378, they are expected to total . The computation of your spouse's survivor benefits, on the other hand, are more complex. Your spouse should expect to receive survivor benefits until your children are years of age. Given your present annual income, spousal benefits are estimated to be per year. (Hint: Don't forget that there is a maximum annual family benefit that may reduce the amount of your spouse's annual benefit.) When discounted at 5%, using the 14-year interest annuity factor of 9.3936, these spousal benefits should total According to the rules of the Social Security Administration, your spouse will experience a benefit blackout for the date on which the twins turn 18 until the spouse's 60th birthday. Your spouse will realize a Social Security blackout period that lasts for until age 60. Now use the data from your calculations above and that from your personal circumstances, to estimate the amount of life insurance your family requires using the needs-based approach. If your answer is zero, enter "0". $ Final expense needs Income replacement needs Readjustment period needs Debt-repayment needs College expense needs Other special needs Total financial need $ Less: Total government benefits Less: Current insurance assets Additional life insurance needed $ Which of the following statements regarding life insurance policies are true? Check all that apply. Once you calculate your insurance needs, you don't ever have to do it again. It is illegal for a policyholder to borrow against the accumulated cash value of their life insurance policy. Term policies have a lower cost than otherwise identical cash-value policies. A beneficiary does not have to pay taxes on the death benefit of a life insurance policy