2. How much life insurance do you need? Calculating needs - Part 1 Kate and Jon Alden are 52 years old and have one daughter, age 14. Kate is the primary earner, making $80,000 per year. Jon does not currently work. The Aldens have decided to use the needs analysis method to calculate the value of a life insurance policy that would provide for Jon and their daughter in the event of Kate's death. Kate and Jon estimate that while their daughter is still living at home, monthly living expenses for Jon and their child will be about $3,300 (in current dollars). After their daughter leaves for college in 4 years, Jon will need a monthly income of $2,750 until he retires at age 65. The Aldens estimate Jon's living expenses after 65 will only be $2,300 a month. The life expectancy of a man Jon's age is 82 years, so the Alden family calculates that Jon will spend about 17 years in retirement. Using this information, complete the first portion of the needs analysis worksheet to estimate their total living expenses: Life Insurance Needs Analysis Worksheet Date July 31, 2015 Period 3 a. $ Name of Insured Jon and Kate Alden Step 1: Financial Resources Needed after Death 1. Annual Living Expenses and Other Needs Period 1 Period 2 Monthly living expenses $3,300 $ b. Net yearly income needed (1a x 12) Number of years in time period d. Total living needs per time period (16 x $ 10) Total Living Expenses (add Line id for each period to check your total): C. 4 9 17 $ $924,600 In addition to these monthly expenses, other future outlays must be accounted for. Before they had a child, Jon worked as a mechanical engineer, but his knowledge and skills are now somewhat outdated. Therefore, they include $25,000 for Jon to go back to school. Additionally, Kate and Jon want to create a college fund of $30,000 to fund their child's college education. They estimate that final expenses (funeral costs and estate taxes) will amount to $12,000. Finally, they have taken out a loan for a business venture of $40,000 and an automobile loan of $3,000. Because the Aldens are renters, they have no outstanding mortgage. Using this information, complete the next portion of Step 1 to determine the total financial resources needed: a. $0 $ 2. Special Needs Spouse's education fund b. Child's college fund Other needs 3. Final Expenses (funeral costs and estate taxes) 4. Debt Liquidation House mortgage b. Other loans Total debt (4a + 4b) 5. Other Financial Needs Total Financial Resources Needed (add right-hand column plus the Total Living Expenses you calculated previously to check your math): III 0:1 a. $ $ C. $ $0 $1,034,600 The second half of the needs analysis worksheet is not shown on this page. To complete the worksheet and determine the value of the life insurance policy the Aldens should purchase, they need to factor in additional information. True or False: Kate's future salary (if she does not die) should be accounted for in the remaining portion of the form. True False