Question

1. Frank age 45, is married to Julie. Frank makes $120,000 per year. He has two children, ages 9 and 10. He pays income taxes of $26,000 per year and FICA taxes of $5,000 per year. Frank consumes $20,000 per year of the family's expenses. He expects raises of 4% annually and plans to retire at age 65. He expects inflation to be 3%. Using the human life value approach, calculate the required amount of life insurance.

Answer 1

Calculation of required amount of Life Insurance using Human Life Value Approach is presented as under:

Human Life Value Approach to Calculate an Insurance Need
Particulars				Details
Frank's Age at Time of Insurance Purchase:				45	Years
Net Income (Gross Income-Household Expenses-Taxes)				$69,000.00	Dollars
Number of Years of Working Life:				21	Years
Assume that Income Increases:				4.00%	per annum
Discounted Rate of Interest [Inflation]				3.00%	per annum
Age (in years)	Duration (in years)	Income ($)	Discounted Rate of Return	Present Value of Future Income
45	1	$69,000.00	0.970873786	$66,990.29
46	2	$71,760.00	0.942595909	$67,640.68
47	3	$74,630.40	0.915141659	$68,297.39
48	4	$77,615.62	0.888487048	$68,960.47
49	5	$80,720.24	0.862608784	$69,629.99
50	6	$83,949.05	0.837484257	$70,306.01
51	7	$87,307.01	0.813091511	$70,988.59
52	8	$90,799.29	0.789409234	$71,677.80
53	9	$94,431.26	0.766416732	$72,373.70
54	10	$98,208.52	0.744093915	$73,076.36
55	11	$102,136.86	0.722421277	$73,785.84
56	12	$106,222.33	0.70137988	$74,502.21
57	13	$110,471.22	0.68095134	$75,225.53
58	14	$114,890.07	0.661117806	$75,955.87
59	15	$119,485.67	0.641861947	$76,693.31
60	16	$124,265.10	0.623166939	$77,437.90
61	17	$129,235.71	0.605016446	$78,189.73
62	18	$134,405.13	0.587394608	$78,948.85
63	19	$139,781.34	0.570286027	$79,715.34
64	20	$145,372.59	0.553675754	$80,489.28
65	21	$151,187.50	0.537549276	$81,270.73
Required Amount of Life Insurance				$1,552,155.86