Will (46) and Karen (44) are married parents of young children (ages 8 and 10). Will is a self-employed C.P.A. with a salary of $150,000. Erica is a teacher and has been at her job for 20 years making $110,000/year. Will and Karen have different levels of risk tolerance. Will tends to be a riskier investor and Karen is by far more conservative. The family has no outstanding debt outside of a mortgage on their primary residence. The outstanding mortgage balance totals $250,000 against a fair market value of the home of $500,000. Their liquid assets consist of jointly held bank deposits ($15,000), mutual fund ($1,755,000) and combined retirement assets of $400,000 (Karen $195,000 and Will $205,000). Neither carries any life insurance.

The family spends roughly 37% of their joint salary on taxes, etc with the remainder used to provide for their family. They plan to retire at age 67. Assume a 5% opportunity cost in any analysis.

Karen and Will's goals are to provide enough life insurance in the event of their deaths to provide for their children to age 18 and to provide some funds for their college education ($300,000 in total for both kids). In the event of the premature death of either spouse, they would like to provide their dependents with an annual income of $60,000. Both Karen and Will be eligible for social security survivorship benefits. Assuming $50,000/year (includes both children and surviving spouse).

1) Determine the family-type Karen and Will represent and discuss the level of need for life insurance given this family type.

2) Calculate the amount of insurance they should obtain given their personal information and goals as noted above using all four methods we discussed in class.

3) Finally, what type of life insurance would you recommend they obtain and why?