Question

Frank is a consultant who earns $72,000 annually. His spouse, Julie is a homemaker, and they have one child, Betty. Frank is covered by $200,000 life insurance policy. The couple assumes an average annual inflation rate of 3%. How would you design a financial plan for them regarding how much life insurance they should have? NOTE no mortgage is assumed.

Frank and Julie have set the following goals and assumptions:

a. Income need (re-adjustment period 1 year) $72,000 year

b. Income need—dependency period $42,000 year

c. Income needed—empty nest period $36,000 year

d. Estate expenses and debts $15,000

e. Education funding (today’s dollars) $180,000 (4 years)

f. Emergency fund $15,000

g. Investment assets (cash/cash equivalents) $100,000

h. Julie’s life expectancy 85 years

i. Discount rate 6%

Answer 1