Question

A life insurance agent has completed the following capital needs analysis for her clients, Janet and Gil, a married couple, is as follows:

Final Expenses at Death Lost Expenses $50,000 Mortgage on Home $350,000 Education Fund $160,000 Total Expenses at death $560,000

Assets at Death Group Life Insurance $150,000 ABI Life UL policy $50,000 Non Registered Investments $100,000 Total assets at death $300,000
Janet has told his insurance agent that if Gil dies, she would require $4,000 per month for the rest of her life and $2,500 per month for the next 15 years to care for their two young children. The agent has determined that government benefits will provide Janet and the children with $1,000 per month for the next 15 years. Since Janet and Gil feel that a 3% rate of return is reasonable, what amount of coverage should Gil obtain to assure that this goal can be met using the capital needs approach?

Answer 1

The analysis aims to calculate the life insurance coverage needed for Gil, considering monthly income needs for his wife and children, government benefits, expenses at death, current assets, and a 3% rate of return.

Step-by-step explanation:

The question revolves around determining the appropriate coverage Gil should obtain based on a capital needs analysis to ensure his wife, Janet, has the required monthly income after Gil's death. The analysis includes calculating the future income needed, considering government benefits, and subtracting the total current assets at death from the total expenses at death. The desired monthly income is $4,000 for Janet's lifetime and an additional $2,500 for their children for the next 15 years, offset by $1,000 from government benefits. Using a 3% rate of return, the analysis aims to calculate the necessary life insurance coverage, by first determining the present value of these future income needs and then adding the one-time expenses to find the total required capital at Gil's death.