These items pertaining to the insureds earning capability will need to be computed:

1)Net worth=Total Assets -Total Liabilities

2) Capital to generate regular income needs=PV of regular income at specific interest (i) for a specific number of years (n).

3) Lump sum capital needs total sum of liabilities and other need to be settled upon the breadwinners death (mortgage, loans, final expenses, emergency fund)

4) Income-producing Asset sum of liquid assets that can be liquidated for immediate cash.

5) Capital Shortfall additional insurance that is required for the family needs: Total capital needed from 2) plus total Liabilities that need to be settled upon breadwinners death from 3) minus Available Income from Net Income producing Assets from 4).

James (aged 33) and his wife, Jennie (aged 30), have just purchased a new condominium for $550,000. They plan to take a 80% mortgage loan of $440,000 for the next 35 years. James has the following assets: BMW car $65,000 stocks on (stock exchange of America) $180,000 group insurance by his employers $400,000 personal insurance $250,000 James has a hire purchase loan on the BMW car amounting to $40,000. Should he pre-decease Jennie, James Plans to provide $36,000 per annum for Jennie till she reaches age 70. James would also like to create an Emergency Buffer fund of $50,000 and Final Expenses fund of $35,000. Using the CAPITAL LIQUIDATION method, compute the amount of additional life insurance that James needs to purchase. Assume a discount rate of 4% per annum and that income is received at the end of the period. In the example above; as life mortality is uncertain, James would like to provide for his wife, Jennie, an income of $36,000 for an indefinite time period. Using the CAPITAL PRESERVATION method, compute the amount of additional life insurance that James needs to purchase. Assume a discount rate of 4% per annum and that income is received at the end of the period