Question

John works at the John Deere factory as a welder. He makes $70,000 a year. His wife Sherri is a stay at home mom for their three children; ages 13, 11, and 5.

1. based on that, what kind of life insurance do they need?
a. do they need just one policy, or more than one?

Bob is 62 and owns the local furniture store. His wife passed away two years ago. He has four children; Bobby Jr., Emma, James, and Cecil. Bob wants the business to continue for his children after he passes. The business is worth about $800,000 right now. Bobby Jr. and James want to inherit the business and keep it going. Emma and Cecil have no interest in the business. .

1. How much insurance do they need?
a. If there is more than one policy how much for each, and why?
b. Show your calculations if appropriate to show which method you used.

Answer 1

Life insurance is a contract between an insurer and a policyholder in which the insurer guarantees payment of a death benefit to named beneficiaries upon the death of the insured. The amount of life insurance needed depends on the financial needs of the dependents left behind. In John and Sherri’s case, they have three children who are still minors and depend on their income. They should consider purchasing enough life insurance to cover their children’s expenses until they are old enough to support themselves. It is recommended that they purchase a policy that is at least 10-12 times their annual income1.

As for whether they need one policy or more than one, it depends on their individual circumstances. If John and Sherri have different financial needs, they may need separate policies. For example, if John has more debt than Sherri, he may need a larger policy to cover his debts2.