Scheherazade is using the needs approach to determine how much life insurance to buy. Her needs...

Scheherazade is using the needs approach to determine how much life insurance to buy. Her needs are as follows: cash needs $130,000; income needs $780,000; special needs $100,000. Scheherazade has the following assets: cash $20,000, retirement plans $175,000, securities $35,000. She owns no individual life insurance but has an $85,000 group life policy through her employer. Based on this information, how much additional life insurance should Scheherazade purchase? Be sure to show your calculations.

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Expert Solution

Answer: We will use the following formula to know the amount of additional life insurance that Scheherazade should purchase:

Amount of Additional Life Insurance =

= (Cash Needs + Income Needs + Special Needs) - (Cash on hand + Retirement Plans + Securities) - Existing Life Insurance Amount

Where Cash Needs = 130000,

Income Needs = 780000,

Special Needs = 100000,

Cash on hand = 20000,

Retirement Plans = 175000,

Securities = 35000, and

Existing Life Insurance Amount = 85000

Hence, by replacing the appropriate values in the above formula, we get:

Additional Amount of Life Insurance = (130000 + 780000 + 100000) - (20000 + 175000 + 35000) - 85000

= 695,000 $

keosha answered 1 year ago

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