The Rbeds Want to Know: How Much Is Enough? Groyson and Aubrey Reed are a two-income couple in their early 305. They hovo two children, ages 6 and 3. Grayson's monthly take-home pay is $3,600, and Aubrey's is $4,200. The Reeds feel thet, becouse they're a two-income tamily, they both shoula hove adequate life insurance coverage. Accordingly, they are now trying to decide. how much life insurance cach one of them needs. To begin with, they'd like to set up an education fund for their children in the amount of $120,000 to provide coliege funds of $15,000 a year - in today's dollars - for four years for each child. Moreover, if ether spouse should die, they want the surviving spouse to have the funds to pay off all outstanding debts, including the $210,000 mortgage on their house. They estimate that they have $25,000 in consumer instaliment loans and credit cards. They also project that if either of them dies, the other probably will be left with about $10,000 in final estate and burial expenses. Regarding their annual income needs, Grayson and Aubrey both foel strongly that each should have enough insurance to repiece her or his fespective current incorne level until the younger child turns 18 (a period of 15 years). Aithough neither Grayson nor Aubrey would be eligible for Social Security survivor's benents because they both intend to continue working, both children would qualify in the (combined) amount of around $1,800 a month. The feeds have accurnulated about $75,000 in investments, and they have a decreasing term life policy on eoch other in the amount of $100,000 (paid at the death of the insured), which could be used to partially pay off the mortgage, Grayson also has an $80,000 group life insurance policy at work, and Aubrey a $100,000 group life insurance palicy. 1. Assume that Grayson's gross annual income is $55,000 and Aubrey's is $65,000. Their insurance agent has given them a multiple earnings table showing that the earnings multiple to reploce 75 percent of their lost earnings is 8.3 for Greyson and 7.6 for Aubrey. Use this approach to find the amount of life insurance each should have if they want to replace 75 percent of their lost earnings. Life insurance needed by Grayson: s Life insurance needed by Aubrey: $ 2. Use Worksheet 8.1 to find the additional insurance needed on both Groyson's and Aubrey's lives, (Becouse Groyson and Aubrey hold secure, well-paying jobs, both agree that they won't need any additional help once the kods are grown; both also agree that they'l have plenty of income from Sociar security and company pension benefits to take care of themseives in retirement. Thus, when preparing the worksheet, assume "funding needs" of zero in Periods 2 and 3. ) 1. Assume that Graysan's gross annual income is $5,000 and Aubrey's is $65,000. Their insurance agent has given them a multiple earnings table showing that the earnings mutiple to replace 75 percent of their lost earnings is 8.3 for Graysan and 7.6 for Aubrey. Use this approach to find the amount of ufe insurance each should have if they want to replace 75 percent of their lost earnings. Ufe insurance needed by Grabson: Life insurance needed by Autrey: 2. Use Worksheet 8:1 to find the additional insurance needed on both Grayson's and Aubroys tives; (Because Grayson and Albrey hold secure, well-paying jobs, both agree that they wor't need any additional help once the kids are grown; both also agree that they have plenty of income froen social Security and company pension beneflis to take care of themselves in retirement. Thus, when preparing the worksheet, assume "Nunding needs' of zero in Periods 2 and 3 ) Additional insurance needed by Grayson: ; Additional insurance needed by Aubrey
