Question

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 $ 30,000 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 6​%. In addition to covering the annual​ expenses, they would like to make sure that each of their children has​ $25,000 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​ $20,000. They have a mortgage on their home with a balance of​$55,000.

How much life insurance should they purchase for​ Marty?

Answer 1

To determine how much life insurance Marty should purchase, we need to calculate their annual expenses, college savings, schooling costs, and mortgage balance. Adding up these amounts gives us a total of $390,000.

Step-by-step explanation:

To determine how much life insurance Marty should purchase, we need to consider several factors. First, we need to calculate their annual expenses. Currently, their expenses are $30,000, and Marty covers 75% of the expenses, so Marty's portion is $30,000 * 0.75 = $22,500 per year. Mary's portion is $30,000 * 0.25 = $7,500 per year. They want to maintain their current standard of living for at least the next eight years, so we multiply their annual expenses by 8 to get the total amount needed: $22,500 * 8 = $180,000 for Marty, and $7,500 * 8 = $60,000 for Mary.

In addition to covering their annual expenses, they want to save $25,000 for each of their three children's college education. That's a total of $25,000 * 3 = $75,000. They also need to cover Mary's part-time schooling costs of $20,000.

Finally, they have a mortgage balance of $55,000 that needs to be paid off if Marty were to die.

Now, let's calculate the total amount of life insurance Marty should purchase:

• Total annual expenses for Marty: $180,000
• Total annual expenses for Mary: $60,000
• Total college savings: $75,000
• Total schooling costs for Mary: $20,000
• Total mortgage balance: $55,000

Add up these amounts to get the total life insurance needed: $180,000 + $60,000 + $75,000 + $20,000 + $55,000 = $390,000.

Therefore, Marty should purchase $390,000 of life insurance.