2. How much life insurance do you need? Calculating needs - Part1 Janet and Sam Zhou are 38 years old and have one daughter, age 9. Janet is the primary earner, making $140,000 per year. Sam does not currently work. The Zhous have decided to use the needs analysis method to calculate the value of a life insurance policy that would provide for and their daughter in the event of Janet's death. Janet and Sam estimate that while their daughter is still living at home, monthly living expenses for Sam and their child will be about $4,000 (in current dollars). After their daughter leaves for college in 9 years, Sam will need a monthly income of $3,300 until he retires at age 65 . The Zhous estimate Sam's living expenses after 65 will only be $2,900 a month. The life expectancy of a man Sam's age is 82 years, so the Zhou family calculates that Sam 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 Name of insured Sam and Janet Date July 31 Zhou 2015 Step 1: Financial resources needed after death 1. Annual living expenses and other needs Period 1 Period 2 Period 3 a. Monthly living expenses b. Net yearly income $ needed (1a 12) c. Number of years 9 18 17 in time period d. Total living needs $ $ $ per time period (1b 1c) Total living expenses (add Line 1d $1,736,400 for each period to check your total): In addition to these monthly expenses, other future outlays must be accounted for. Before they had a child, Sam worked as a financial consultant, but his knowledge and skills are now somewhat outdated. Therefore, they include $40,000 for Sam to go back to school. Additionally, Janet and Sam want to create a college fund of $60,000 to fund their child's college education. They estimate that final expenses (funeral costs and estate taxes) will amount to $18,000. Finally, they have taken out a loan for home improvements of $130,000 and an automobile loan of $5,000. They own their home but still have an outstanding mortgage of $300,000. Using this information, complete the next portion of Step 1 to determine the total financial resources needed. 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 Zhous should purchase, they need to factor in additional information. True or False: Janet's future salary (if she does not die) should be accounted for in the remaining portion of the form. True False