In: Finance
Sam is 25 years old, in good health and was just married to his college sweetheart. he recently began a job with a salary of $60,000. he signed up for term life insurance with his employer for 2 times his salary. Lilly is also employed and makes $40,000 per year. They have no debt or assets but want to buy a house in the near future. Lilly has an $80,000 term life insurance policy that is paid by her employer. what life insurance policy would you recommend for Sam?
A. whole life insurance policy with face value of $120,000. the annual premium for the policy is $1,200.
B. He doesn’t need any additional life insurance since he has a term policy with his work, and they don't have any assets.
C. Purchase a $1,000,000 30-year level term insurance policy. the annual premium for this policy is $1,200.
D. Purchase a $2,000,000 whole life insurance policy. the monthly premium for this policy is $1,800.
Estimating the life insurance that Sam and Lilly would require based on their income using multiple of earnings appraoch since we have limited information.
Using a multiple of 10 = (60,000+40,000) *10 = 1,000,000
Given that Lilly already has been covered of $80,000 by her employer the couple can opt for a cumulative coverage of $1,000,000. A term life insurance will protect against early death and make investments to prepare for a longer life.
Considering above, option:
Option C. Purchase a $1,000,000 30-year level term insurance policy. the annual premium for this policy is $1,200.