Question

Amount of Insurance Needed. Marty and Mary have jobs and contribute to the household expenses according to their income. Marty contributes 75% of the expenses and Mary contributes 25%. Currently, their household expenses are $23,700 annually. Marty and Mary have three children. The youngest child is 12, so they would like to ensure that they could maintain their current standard of living for at least the next eight years. They feel that the insurance proceeds could be invested at 5%. In addition to covering the annual expenses, they would like to make sure that each of their children has $16,826 available for college. If Marty were to die, Mary would go back to school part-time to upgrade her training as a nurse. This would cost $15,887. They have a mortgage on their home with a balance of $45,070. How much life insurance should they purchase for Mary? The amount of life insurance they should purchase for Mary is $. (Round to the nearest dollar.)

Answer 1

SOLUTION The amount of life insurance purchased must be sufficient to provide for Marty's portion of the annual living expenses over the next eight years, to pay for the children's college education, to pay for Mary's tuition expenses, and to pay off the home mortgage: Amount of insurance needed to meet annual living expenses: Calculate Marty's portion of the annual expenses: $23,700 * 75% = $17,775. Calculate the amount of insurance needed to cover Marty's portion of the expenses: Annuity amount ' PVIFA (1= 5, n=8) = $17,775 * 6.4632 = $114,883. Total amount of insurance needed: Expenses $114,883 College educations (3 children $16,826 50,478 each) Training for Mary 15,887 Pay off mortgage 45,070

Total insurance for Marty $226,318.