Grayson and Aubrey Reed are a two-income couple in their early 30s. They have two children, ages 6 and 3. Grayson's monthly take-home pay is $3,600, and Aubrey's is $4,200. The Reeds feel that, because they're a two-income family, they both should have adequate We insurance coverage. Accordndy, they are now trying to decide how much We insurance each one of them needs To begin with, they'd like to set up an education Fund for their chideen in the amount of $120,000 to provide colege funds of $15,000 a year in today's dollers - for four years for each child Moreover, other spouse should die, they want the surviving spouse to tuve the funds to pay off atoutstanding debts, induding the $210,000 mortgage on their house. They estimate that they have $25,000 in consumer installment loans and credit cards. They also project that 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 feel strongly that each should have enough insurance to replace her of his respective current come level until the younger child toms 1 (a period of 15 years). Although neither Grayson nor Aubrey would be eliptile for Social Security survivor's benefits because they both intend to continue working, both children would say the (combried) amount of around $1,800 a month. The Reeds have accumulated about $75,000 nevestments, and they have a decreasing termie policy on each 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 500,000 group Wensurance polcy at work and Aubrey $100,000 open policy 1. Assume that Grayson's gross annual income $55,000 and Aubrey's $66,000. Their insurance agent has oven them a multiple caminos table showing that the camingu mure to replace 75 percent of their fout earnings for Grayson and 7.1 for Aubrey. Use the approach to find the amount of Me insuranon each should have they want to replace 75 percent of their fosteaming Life insurance needed by Grayson $ Life insurance needed by Aubrey 5 2. Use Worksheet 8.1 to find the additional insurance needed on both Grayson's and Aubreyes (Because Grayson and Aubrey hold secure, we paying jobs, both agree that they won't need any additional help once the kids are grown both also agree that they have plenty of income from Gool Security and company person benefits to take care of themselves in retirement. Thus, when preparing the worksheet, assume undng needs of zero in Periods 2 and 3.) Additional insurance needed by Grayson: $ Additional insurance needed by Aubrey 3. Is there a difference in your answers to Questions 1 and 27 11 so, why? Which nombor do you think is more indicative of the Reed Me insurance needs Using the amounts computed Question 2 (employing the needs approach), what kind of lfe insurance policy would you recommend for Gayton? For Aubrey Belly explain your answers, The input in the box below will not be graded, but may be reviewed and considered by your instructor 1 2 Insured's Name UFE INSURANCE NEEDS ANALYSIS Date Period 3 $ S $ S $ S $ S 5 $ 5 5 5 Step 1: Financial resources needed after death 6 1. Annual living expenses and other neel 7 Period 1 Period 2 8 a Monthly livine expenses 5 S b. Net yearly income needed S S 9 (ax 12) 10 Number of years in time period 11 d. Total living need per time period (bx S $ 12 TOTAL LIVING EXPENSES (add line d for each period): 2. Special needs 13 14 a. Spouse education fund 15 b. Children's college fund 16 Other needs 17 3. Final expenses (funeral, estate costs, 18 4. Debt liquidation 19 a. House mortgage S $ 20 6. Other loans 21 Total debt (4 a + 4b) 22 5. Other financial needs 23 TOTAL FINANCIAL RESOURCES NEEDED (add right column) 24 Step 2: Financial resources available after death 25 26 1. Income 27 Period 1 Period 2 a. Annual Social Security survivor's S S 28 benefits 29 b. Surviving spouse's annual income Security 30 benefits 31 d. Annual income s S 32 e. Number of years in time period 0 33 Total period income (dxe) s $ 34 e. Total Income 35 2 Savings and investments 36 3. Other life insurance 37 4. Other resources 38 TOTAL FINANCIAL RESOURCES AVAILABLE (1+2+3+4) 39 Step 3: Additional Life Insurance needed 40 Step 1 total: Total financial resources needed 41 Step 2 total: Total financial resources available 42 ADDITIONAL LIFE INSURANCE NEEDED (step 2 total - step 1 total) ws_08.1 Period 3 $ 0 $ 0 $ S S $ $ S $ S
