Joetta Hernandez is a single parent with two children and earns $69,400 a year. Her...
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Accounting
Joetta Hernandez is a single parent with two children and earns
$69,400
a year. Her employer's group life insurance policy would pay 2.5 times her salary. She also has
$92,533
saved in a 401(k) plan,
$7,711
in mutual funds, and a
$4,627
certificate of deposit. She wants to purchase term life insurance for
15
years, until her youngest child is self-supporting. She is not concerned about her outstanding mortgage, as the children would live with her sister in the event of Joetta's death. Assuming she can receive a
3
percent after-tax, after-inflation return on insurance proceeds, use the earnings multiple method to calculate her insurance need. How much more insurance does Joetta need to buy? What other information would you need to know to use the needs approach to calculate Joetta's insurance coverage?
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