Determining My Life Insurance Needs

Resource: Worksheet 48: Determining My Life Insurance Needs

Write a 175-


Determining My Life Insurance Needs (page 353)
NOTE: Results here may differ slightly than when using Appendix A in text due to rounding.
Factors Affecting Need Sample Only Insert Your Own Figures
1. Income-replacement needs* $823,219
2. Final-expense needs $ 12,000
3. Readjustment-period needs $ 19,000
4. Debt-repayment needs $ 10,000
5. College-expense needs $ 75,000
6. Other special needs $ – 0
7. Subtotal (combined effects of items 1–6) $ 939,219
8. Government benefits** $390,370
9. Investment Assets Available $0
10. Current Life Insurance In Place $ 98,000
11. Life insurance needed $ 450,848
*Income Replacement Needs Calculator
Current Annual Income $56,000
Percent of Annual Income To Be Replaced 75%
Annuity Amount (% desired of annual income) $42,000
i (assumed interest rate 3.00%
n (number of annuity payments) 30
PV (present value) of Income Replacement Needs $823,219
**Present Value of Social Security Benefits Calculator
Estmated Monthly Benefit (See Appendix B in Text) $2,725.00
Estimated Annual Benefit $32,700
i (assumed interest rate 3.00%
n (number of annuity payments) 15
PV (present value) of Government Benefits $390,370



to 350-word response to Case 6 on p. 317 in Ch. 10 of Personal Finance.


An Argument About the Value of Insurance

You have been talking at a party to some friends about insurance. One young married couple in the group believes that insurance is almost always a real waste of money. They argue, “The odds of most bad events occurring are so low that you don’t need to worry.” Furthermore, they say, “Buying insurance is like pouring money down a hole; you rarely have anything to show for it in the end.” Based on what you have learned from this chapter, how might you argue against this couple’s point of view?

Complete “Do the Math”, #2 on p. 344 in Ch. 11 of Personal Finance.

2. Health Care Event Protection. Christina Haley of San Marcos, Texas, age 57, recently suffered a stroke. She was in intensive care for 3 days and was hospitalized for 10 more days. Her total bill for this care was $125,500. After being discharged from the hospital, she spent 25 days in a nursing home at a cost of $170 per day. Christina, who earns $4,500 per month, missed two months of work. Christina had a health insurance plan through her employer. The policy had a $1000 deductible and an 80/20 coinsurance clause with a $2000 coinsurance cap. She had also accumulated 21 sick days (equivalent to one month) at work. Otherwise she had no long-term care or disability income insurance.

(a) How much of Christina’s direct medical expenses was paid by her insurance policy?

(b) What did Christina have to pay for her nursing home care?

(c) How much income did Christina lose?

Complete #1, “Calculating Life Insurance Need”, on p. 376 in Ch. 12 of Personal Finance.

1. Calculating Life Insurance Need. Review the material in “How Much Life Insurance Do You Need?” on pages 351–354. Then using dollar amounts that fit your personal situation, complete Worksheet 48: Determining My Life Insurance Needs from “My Personal Financial Planner.” If you are currently single and childless, for the purposes of this activity, assume that you are 30 years old, have two children under age 5, are married, and earn $60,000 per year and redo the estimate of need. How would having a family change your need for life insurance?

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