question 4

The Woos' Needs Final expenses They estimate that final expenses (such as funeral costs and estate taxes) would be $12,000 Income replacement The Woos are cautious and decided to replace Kevin's income for 13 years, when Kathy will be 65. Assume that Kathy would invest the life insurance proceeds at a 4% after-tax, after-inflation rate of return. Even though Kathy would be eligible to receive survivor's benefits when she reaches the age of and then Social Security retirement benefits years later, they want an extra cushion. ra financial consultant but her knowledge Government benefits The Woo's Existing Assets and Government Benefits The family would qualify for $4,700 monthly Social Security survivor's benefits until the son is years old. Assume that Kathy will invest the benefits at a 4% after-tax, after inflation rate of return. Pay attention to the length of time the son will be eligible for benefits and compute your answer based on how long he will be eligible for those benefits. There is equity in the Woo's home, as well as balances in their 401(k)s that they do not want to have to rely on for the family's support if Kevin dies. There is currently no life Insurance on Kevin's life Existing assets The Woos' Figures 1. 2. 3. Factors Affecting Need Final-expense needs Includes funeral, burial, travel, and other items of expense Just prior to and after death Income-replacement needs Multiply 75% of annual income by the interest factor from the present value of an annuity table that corresponds to the number of years that the income is to be replaced and the assumed after-tax, after-inflation rate of return. Readjustment-period needs To cover employment interruptions and possible education expenses for surviving spouse and dependents Debt-repayment needs Provides repayment of short-term and installment debt, including home improvements and an auto loan College-expense needs To provide a fund to help meet college expenses of dependents Other special needs Subtotal (combined effects of items 1-6) Less: Government benefits Present value of Social Security survivor's benefits and other benefits Multiply monthly benefit estimate by 12, and use the present value of an annuity table for the number of years that benefits will be received and the same interest rate that was . 6. 7 8. used in Item 2 Less: Current insurance assets used in item 2 9. Less: Current insurance assets 10. Life insurance needs * 75% is used because about 25% of income is used for personal needs. The Woos' Needs Final expenses They estimate that final expenses (such as funeral costs and estate taxes) would be $12,000 Income replacement The Woos are cautious and decided to replace Kevin's income for 13 years, when Kathy will be 65. Assume that Kathy would invest the life insurance proceeds at a 4% after-tax, after-inflation rate of return. Even though Kathy would be eligible to receive survivor's benefits when she reaches the age of and then Social Security retirement benefits years later, they want an extra cushion. ra financial consultant but her knowledge Government benefits The Woo's Existing Assets and Government Benefits The family would qualify for $4,700 monthly Social Security survivor's benefits until the son is years old. Assume that Kathy will invest the benefits at a 4% after-tax, after inflation rate of return. Pay attention to the length of time the son will be eligible for benefits and compute your answer based on how long he will be eligible for those benefits. There is equity in the Woo's home, as well as balances in their 401(k)s that they do not want to have to rely on for the family's support if Kevin dies. There is currently no life Insurance on Kevin's life Existing assets The Woos' Figures 1. 2. 3. Factors Affecting Need Final-expense needs Includes funeral, burial, travel, and other items of expense Just prior to and after death Income-replacement needs Multiply 75% of annual income by the interest factor from the present value of an annuity table that corresponds to the number of years that the income is to be replaced and the assumed after-tax, after-inflation rate of return. Readjustment-period needs To cover employment interruptions and possible education expenses for surviving spouse and dependents Debt-repayment needs Provides repayment of short-term and installment debt, including home improvements and an auto loan College-expense needs To provide a fund to help meet college expenses of dependents Other special needs Subtotal (combined effects of items 1-6) Less: Government benefits Present value of Social Security survivor's benefits and other benefits Multiply monthly benefit estimate by 12, and use the present value of an annuity table for the number of years that benefits will be received and the same interest rate that was . 6. 7 8. used in Item 2 Less: Current insurance assets used in item 2 9. Less: Current insurance assets 10. Life insurance needs * 75% is used because about 25% of income is used for personal needs