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3. How much life insurance do you need? Calculating resources - Part 2 Aa Aa E Paolo and Maria Rossi have completed Step 1 of their needs analysis worksheet and determined that they need $2,323,000 to maintain the projected lifestyle of Maria (age 32) and their two children (ages 3 and 4) in the event of Paolo's (the primary earner's) death. The Rossis also have certain financial resources available after Paolo's death, however, so their life insurance needs are lower than this amount. If Paolo dies, Maria will be eligible to receive Social Security survivors' benefits-approximately $3,000 a month ($36,000 a year) until the youngest child graduates from high school in 15 years. After the children leave home, Maria will be able to work full-time and earn an estimated $38,000 a year (after taxes) until she retires at age 65. After Maria turns 65, she'll receive approximately $2,400 a month ($28,800 a year) from her own Social Security and retirement benefits. The life expectancy for a woman within Maria's demographic is 87. The couple has also saved $60,000 in a mutual fund, and Paolo's employer provides him a $100,000 life insurance policy. Using this information, complete Step 2 of the needs analysis worksheet to estimate their total financial resources available after death. (Note: If the value of a certain entry is zero, be sure to enter "O" to receive credit.) Period 2 Period 3 a. $ A A $ Step 2: Financial Resources Available After Death 1. Income Period 1 Annual Social Security survivors' benefits Surviving spouse's annual income Other annual pensions and Social Security benefits Annual income (1a + 1b + 1C) Number of years in time period 15 f. Total period income (1d x 1e) g. Total income 2. Savings and investments 3. Other life insurance e. 18 22 $ $1,857,600 A A A 4. Other resources Total Financial Resources Available (1g + 2 + 3 + 4): $2,017,600 Finally, to determine the value of life insurance Paolo and Maria should purchase, complete Step 3 of the needs analysis method by subtracting the total financial resources available from the total financial resources needed: Step 3: Additional Life Insurance Needed Total Financial Resources Needed (from Step 1) Total Financial Resources Available (from Step 2) $2,323,000 $2,017,600 Additional Life Insurance Needed: True or False: Alternatively, the Rossis could have estimated their life insurance needs using the multiple-of-earnings method, a more complicated but more accurate method than the needs analysis. O O True False 3. How much life insurance do you need? Calculating resources - Part 2 Aa Aa E Paolo and Maria Rossi have completed Step 1 of their needs analysis worksheet and determined that they need $2,323,000 to maintain the projected lifestyle of Maria (age 32) and their two children (ages 3 and 4) in the event of Paolo's (the primary earner's) death. The Rossis also have certain financial resources available after Paolo's death, however, so their life insurance needs are lower than this amount. If Paolo dies, Maria will be eligible to receive Social Security survivors' benefits-approximately $3,000 a month ($36,000 a year) until the youngest child graduates from high school in 15 years. After the children leave home, Maria will be able to work full-time and earn an estimated $38,000 a year (after taxes) until she retires at age 65. After Maria turns 65, she'll receive approximately $2,400 a month ($28,800 a year) from her own Social Security and retirement benefits. The life expectancy for a woman within Maria's demographic is 87. The couple has also saved $60,000 in a mutual fund, and Paolo's employer provides him a $100,000 life insurance policy. Using this information, complete Step 2 of the needs analysis worksheet to estimate their total financial resources available after death. (Note: If the value of a certain entry is zero, be sure to enter "O" to receive credit.) Period 2 Period 3 a. $ A A $ Step 2: Financial Resources Available After Death 1. Income Period 1 Annual Social Security survivors' benefits Surviving spouse's annual income Other annual pensions and Social Security benefits Annual income (1a + 1b + 1C) Number of years in time period 15 f. Total period income (1d x 1e) g. Total income 2. Savings and investments 3. Other life insurance e. 18 22 $ $1,857,600 A A A 4. Other resources Total Financial Resources Available (1g + 2 + 3 + 4): $2,017,600 Finally, to determine the value of life insurance Paolo and Maria should purchase, complete Step 3 of the needs analysis method by subtracting the total financial resources available from the total financial resources needed: Step 3: Additional Life Insurance Needed Total Financial Resources Needed (from Step 1) Total Financial Resources Available (from Step 2) $2,323,000 $2,017,600 Additional Life Insurance Needed: True or False: Alternatively, the Rossis could have estimated their life insurance needs using the multiple-of-earnings method, a more complicated but more accurate method than the needs analysis. O O True False

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