Wendy and Frank Kampe, 30 and 35, are considering the purchase of life insurance. Wendy doesn’t have any coverage whereas Frank has a $150,000 group policy at work. The Kampes have two young children, ages 3 and 5. Wendy earns $28,000 annually from a part-time, home-based business. Frank’s annual salary is $55,000. From their income, they save $7,500 annually. The rest goes for expenses. The couple estimates that the children will be financially dependent for another 20 years.

In preparation for a visit with their insurance agent, the Kampes have estimated the following expenses if Frank were to die:

Immediate needs at death	$25,000
Outstand debt (including mortgage payment)	$90,000
Transitional funds for Wendy to expand her business to fully support the family	$15,000
College expenses for their two children	$205,000

They also anticipate, should Frank die, receiving $8,000 a year in Social Security survivor’s benefits until the youngest child turns 18, and $5,000 annually in pension benefits, until Wendy turns 80. Wendy projects her gross annual income to be $40,000 after her business expansion. Once the children are self-supporting, Wendy wants to plan a spousal life income for 10 more years, from age 50 to age 60, plus retirement income for another 20 years from age 60 to age 80. She anticipates receiving a 5 percent after-tax, after-inflation return on their investments.

To date, the Kampes have accumulated a total of $107,000 of assets, not including $45,000 home equity. Their assets include$10,000 considered as an emergency fund, $12,000 of IRA funds for Wendy, $35,000 in other investments, and $50,000 in Frank’s employer 401(K) plan.

Questions:

Using the needs approach, estimate the amount of additional life insurance, if any, that the Kampes should purchase to protect Wendy if Frank should die.

Should Wendy purchase an insurance policy? Why or why not? If so, what type of policy would you recommend for Wendy?

What type of life insurance policy would you recommend that Frank purchase?