Amount of Insurance Needed. Peter is married and has two children. He wants to be sure...

Amount of Insurance Needed. Peter is married and has two children. He wants to be sure that he has sufficient life insurance to take care of his family if he dies.Peter's wife is a homemaker but attends college part-time pursuing a law degree. It will cost approximately $38,207 for her to finish her education. Since the children areteenagers, Peter feels he will only need to provide the family with income for the next 10 years. He further calculates that the household expenses run approximately $33,100per year excluding the mortgage payments. The balance on the home mortgage is $29,978.Peter set up a college fund for his children when they were babies, and it currently contains sufficient funds for them to attend college. Assuming that Peter's wife can invest the insurance proceeds at 8%,calculate the amount of insurance Peter needs to purchase.

The amount of life insurance Peter would need to purchase is $ ?.

Expert Solution

We use the Budget method to estimate the amount of insurance needed

PV of annual expenses

=PV(8%,10,-33100) considering Rate=8%, N=10 years and annual expenses= 33100

=$222,103.69

Total insurance= 222103.69+ Education needs + Home mortgage balance

= 222103.69+ 38207 + 29978

= $290288.69

jeff jeffy answered 2 years ago

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