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Grayson and Aubrey Reed are a two-Income couple in their early 30s. They have two children, ages 6 and 3. Grayson's monthly take-home pay $3,600, and Aubrey's is $4,200 The Reeds feel that, because they're a two-income family, they both should have adequate life insurance coverage. Accordingly, they are now trying to decide how much We Insurance each one of them needs. To begin with, they'd like to set up an education fund for their children in the amount of $120,000 to provide college funds of $15,000 a year - in today's doters - for four years for each child. Moreover, if either spouse should die, they want the surviving spouse to have the funds to pay off all outstanding debts, including the $210,000 mortgage on their house, They estimate that they have $25,000 in consumer installment loans and credit cards. They also project that if other of them dies, the other probably will be left with about 110,000 in final estate and burial expenses. Regarding their annual income needs, Grayson and Aubrey both feel strongly that each should have enough insurance to replace her or his respective current income event the younger child turns 18 (a period of 15 years). Although neither Grayson nor Aubrey would be eligible for Social Security survivor's benefits because they both intend to continue working, both children would quality in the combined) amount of around $1,800 a month. The Reeds have accumulated about $75,000 in investments, and they have a dereing term life policy on each other in the amount of $100,000 (paid at the death of the insured), which could be used to partially pay off the mortgage. Grayson has an $80,000 group life insurance policy at welk and Aubrey a $100,000 group life Insurance policy. 1. Assume that Grayson's gross annual income is $57,000 and Aubrey's is $66,000. Thele insurance agent has given them a multiple earnings table showing that the caring multiple to replace 75 percent of their lost earnings is B. for Grayson and 74 for Aubrey. Use this approach to find the amount of fe inurance each should love the want to replace 75 percent of their lost earnings Life insurance needed by Grayson! $ Life Insurance needed by Aubrey $ 2. Use Worksheet 3.1 to find the additional insurance needed on both Grayson's and Aubrey's lives. (Because Grayson and Aubrey hold secure, well paying jobs, both are that they won't need any additional help once the kids are grown; both also agree that they'll have plenty of income from Social Security and company pension benefits to take care of themselves in retirement. Thus, when preparing the worksheet, assume funding needs of zero in Periods 2 and 3.) Additional insurance needed by Grayson: Additional Insurance needed by Aubrey: 3. Is there a difference in your answers to Questions 1 and 27 If so, why? Which number do you think is more indicative of the Reeds' life insurance neede? Using the amounts computed in Question 2 (employing the needs approach), what kind of life insurance policy would you recommend for Grayson for Aubrey Bay explain your answers. ed and considered by your instructor 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 la x 12) Number of years in time period d. Total living need per time period (bxd TOTAL LIVING EXPENSES (add line d for each period): $ $ $ 2. Special needs 5 $ $ $ a. Spouse education fund b. Children's college fund clother needs 3. Final expenses (funeral, estate costs, etc.) 4. Debt liquidation a. House morteare $ b. Other loans c Total debt (4 a + 4b) 5. Other financial needs TOTAL FINANCIAL RESOURCES NEEDED (add right column) S $ $ $ Step 2: Financial resources available after death Period 2 Period 3 $ $ 0 s S. 0 $ 0 1. Income Period 1 a. Annual Social Security survivor's $ benefits b. Surviving spouse's annual income Other annual pensions and Social Security benefits d. Annual Income $ e. Nurnber of years in time period f. Total period income id xe) $ - Total Income 2. Savings and investments 3. Other life insurance 4. Other resources TOTAL FINANCIAL RESOURCES AVAILABLE (18+2+3+4) Step 3: Additional Life Insurance needed Step 1 total: Total financial resources needed Step 2 total: Total financial resources available ADDITIONAL UFE INSURANCE NEEDED (step 2 total-step 1 total) $ $ $ $ $ 5 $ $ Grayson and Aubrey Reed are a two-Income couple in their early 30s. They have two children, ages 6 and 3. Grayson's monthly take-home pay $3,600, and Aubrey's is $4,200 The Reeds feel that, because they're a two-income family, they both should have adequate life insurance coverage. Accordingly, they are now trying to decide how much We Insurance each one of them needs. To begin with, they'd like to set up an education fund for their children in the amount of $120,000 to provide college funds of $15,000 a year - in today's doters - for four years for each child. Moreover, if either spouse should die, they want the surviving spouse to have the funds to pay off all outstanding debts, including the $210,000 mortgage on their house, They estimate that they have $25,000 in consumer installment loans and credit cards. They also project that if other of them dies, the other probably will be left with about 110,000 in final estate and burial expenses. Regarding their annual income needs, Grayson and Aubrey both feel strongly that each should have enough insurance to replace her or his respective current income event the younger child turns 18 (a period of 15 years). Although neither Grayson nor Aubrey would be eligible for Social Security survivor's benefits because they both intend to continue working, both children would quality in the combined) amount of around $1,800 a month. The Reeds have accumulated about $75,000 in investments, and they have a dereing term life policy on each other in the amount of $100,000 (paid at the death of the insured), which could be used to partially pay off the mortgage. Grayson has an $80,000 group life insurance policy at welk and Aubrey a $100,000 group life Insurance policy. 1. Assume that Grayson's gross annual income is $57,000 and Aubrey's is $66,000. Thele insurance agent has given them a multiple earnings table showing that the caring multiple to replace 75 percent of their lost earnings is B. for Grayson and 74 for Aubrey. Use this approach to find the amount of fe inurance each should love the want to replace 75 percent of their lost earnings Life insurance needed by Grayson! $ Life Insurance needed by Aubrey $ 2. Use Worksheet 3.1 to find the additional insurance needed on both Grayson's and Aubrey's lives. (Because Grayson and Aubrey hold secure, well paying jobs, both are that they won't need any additional help once the kids are grown; both also agree that they'll have plenty of income from Social Security and company pension benefits to take care of themselves in retirement. Thus, when preparing the worksheet, assume funding needs of zero in Periods 2 and 3.) Additional insurance needed by Grayson: Additional Insurance needed by Aubrey: 3. Is there a difference in your answers to Questions 1 and 27 If so, why? Which number do you think is more indicative of the Reeds' life insurance neede? Using the amounts computed in Question 2 (employing the needs approach), what kind of life insurance policy would you recommend for Grayson for Aubrey Bay explain your answers. ed and considered by your instructor 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 la x 12) Number of years in time period d. Total living need per time period (bxd TOTAL LIVING EXPENSES (add line d for each period): $ $ $ 2. Special needs 5 $ $ $ a. Spouse education fund b. Children's college fund clother needs 3. Final expenses (funeral, estate costs, etc.) 4. Debt liquidation a. House morteare $ b. Other loans c Total debt (4 a + 4b) 5. Other financial needs TOTAL FINANCIAL RESOURCES NEEDED (add right column) S $ $ $ Step 2: Financial resources available after death Period 2 Period 3 $ $ 0 s S. 0 $ 0 1. Income Period 1 a. Annual Social Security survivor's $ benefits b. Surviving spouse's annual income Other annual pensions and Social Security benefits d. Annual Income $ e. Nurnber of years in time period f. Total period income id xe) $ - Total Income 2. Savings and investments 3. Other life insurance 4. Other resources TOTAL FINANCIAL RESOURCES AVAILABLE (18+2+3+4) Step 3: Additional Life Insurance needed Step 1 total: Total financial resources needed Step 2 total: Total financial resources available ADDITIONAL UFE INSURANCE NEEDED (step 2 total-step 1 total) $ $ $ $ $ 5 $ $