Your friend Joe asks you for advice concerning life insurance. Joe is $26$ years old and graduated from law school last year. He currently earns $$48,000$ per year. Joe's wife, Joan, is a graphics designer who currently earns $$40,000$ per year. Joan is $28$ years old. The couple have two children: Bobby, age $5,$ and Sally, age $12.$ Joe and Joan pay $$1,250$ per month for their home mortgage, which will be paid off in $20$ years. The interest rate on their mortgage is $6\%.($Their current equity in the home is $$30,000.)$ The couple owns two cars, one is $10$ years old and in relatively good condition. The other is new, and their car loan payments are $$400$ per month for the next $48$ months. The interest rate on the car loan is $3\%.$ The couple's personal property $($such as clothes, electronics, furniture, etc.$)$ is valued at $$40,000.$ Their investments include checking, savings, and mutual fund accounts equal to $$4,000.$ Joe has no life insurance. Joan has a $$50,000$ whole life insurance policy provided as a fringe benefit from her employer. If Joe should die, Joan would receive approximately $$1,500$ per year for each child $18$ years of age or younger from Social Security.$|$

Joe and Joan spend almost all of their take$-$home pay each month. They are able to save $$100$ per month that they deposit into a tax$-$deferred college fund for the children. The college fund has been earning a respectable rate of return of approximately $6\mathrm{.}5\%$ per year. The fund balance right now is $$7,000.$ Their other investments earn approximately $5\%$ per year.

Joe is worried about what may happen to his family is he should die. He is considering the purchase of life insurance and asks your advice.

a$.$ Assuming neither Joe nor Joan will receive large inheritances, how much life insurance do you think Joe needs? Calculate the amount using the needs approach. Show all calculations and explain your answer. Make any assumptions you believe are reasonable, and make sure your assumptions are clearly stated. Also indicate the type of insurance you would recommend, whole life or term. If you recommend term$-$specify the length of the term policy.

b$.$ Assume that Joe and Joan purchase a whole life policy on Joe's life in the amount you determined in part a$.($If the amount you determined is less than $$200,000,$

assume an amount of $$200,000.)$ Twenty years later, Joe decides he doesn't want to make any more premium payments. Which non$-$forfeiture option would you recommend? Explain your selection.

c$.$ Assume that Joe and Joan purchase a whole life policy on Joe's life in the amount you determined in part a$.($If the amount you determined is less than $$200,000,$ assume an amount of $$200,000.)$ Joe dies at age $46.$ Which settlement option would you recommend? Explain your selection and note any assumptions that you make.