Question

In: Finance

Please use the​ "Needs Approach" to determine the recommended life insurance coverage for​ Jun-Li. She would...

Please use the​ "Needs Approach" to determine the recommended life insurance coverage for​ Jun-Li. She would like to have enough insurance to meet her final expenses ($25,000​)​, pay off her​ loans, and provide 2 years of income for her survivors. ​ Jun-Li has a mortgage balance of $250,000​, an auto loan balance of ​$30,000​, credit card debt of $2,000​, and a federal student loan with a balance of $22,500. Her annual salary is $70,000. How much life insurance coverage would you recommend to​ Jun-Li to be sure her goals are​ met?

A.

​$307,000

B.

​$467,500

C.

​$447,000

D.

​$469, 500

Solutions

Expert Solution

Final Expenses = 25000,

Total loans outstanding = Mortgage balance + Auto loan balance + credit card debt + Federal student loan = 250000 + 30000 + 2000 + 22500 = 304500

Annual salary = 70000

2 years of income = 2 x Annual salary = 2 x 70000 = 140000

According to Needs approach, amount of insurance needed should be sufficient to cover immediate and potential future needs of the family after the death of insured

According to Jun Li ,her needs consist of meeting final expenses, paying off her loans and provide income for 2 years to survivors.

Life insurance recommended = Final expenses + Total loans outstanding + 2 years of income = 25000 + 304500 + 140000 = 469500

Hence Answer is D. 469500


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