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Wendy and Frank Kampe, 30 and 35, are considering the purchase of life insurance. Wendy doesn't have any coverage whereas Frank has a $145,000 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 $53,000. From their income, they save $7,200 a year. The rest goes for expenses. The couple estimates that the children will be financially dependent, except for college costs, for about another 15 years. Once the children are in college, Wendy assumes their annual expenses will be $61,568. In preparation for a visit with their insurance agent, the Kampes have estimated the following expenses if Frank were to die They also anticipate, should Frank die, receiving $8,100 a year in Social Security survivor's benefits until the youngest child turns 18, and $5,000 annually in pension funds, until Wendy turns 80. Wendy projects her gross annual income to be $39,000 after her business expansion. Once the children are self-supporting, Wendy wants to plan a spousal life income, that is, funds to make up the difference between her income and pension benefits and her expenses, for 15 more years, from age 45 to 60. Lastly, she wants to plan on $31,000 a year in retirement income for another 20 years, from age 60 to 80. She anticipates receiving a 5 percent after-tax, after-inflation return on their investments. To date, the Kampes have accumulated a total of $106,000 of assets, not including $46,000 of home equity. Their assets include $10,000 in emergency funds, $12,000 in IRA funds for Wendy, $33,000 in other investments, and $51,000 in Frank's 401(k) plan. a. What method should the Kampes use to determine how much insurance they need? b. Should Wendy purchase an insurance policy? Why or why not? If so, what type of policy would you recommend for Wendy? (Select the best choice below.) O A. Yes, Wendy should purchase life insurance, because first, although she currently earns less than what Frank does, she is still contributing to household income and her salary would be missed if she were to die. Second, Wendy undoubtedly provides numerous household services and child care that would likely have to be replaced with paid help if she were to die. Funds need to be available to help Frank cover this potential expense. Term insurance would provide pure insurance protection for Wendy at a relatively low cost. OB. No, Wendy should not purchase life insurance, even though she currently earns less than what Frank does, she is still contributing to household income and her salary would be missed if she were to die. However, Wendy undoubtedly provides numerous household services and child care that would likely have to be replaced with paid help if she were to die. Frank would need to get a raise to cover this potential expense. Term insurance would provide pure insurance protection for Wendy at a relatively low cost. O C. No, Wendy should not purchase life insurance, because first, she currently earns less than what Frank does. Although she is still contributing to household income, her salary would not be missed if she were to die. Second, Wendy undoubtedly provides numerous household services and child care that would likely have to be replaced with paid help if she were to die. Funds need to be available to help Frank cover this potential expense. Term insurance would provide pure insurance protection for Wendy at a relatively low cost. OD. Yes, Wendy should purchase life insurance, because first, she currently earns more than what Frank does, and her salary would be missed if she were to die. Second, Wendy undoubtedly provides numerous household services and child care that would likely have to be replaced with paid help if she were to die. Funds need to be available to help Frank cover this potential expense. Term insurance would provide pure insurance protection for Wendy at a relatively low cost. c. What type of life insurance policy would you recommend that Frank purchase? (Select the best choice below.) O A. Frank should purchase a whole life insurance policy. It will provide the most protection for the least amount of premium cost. Since Frank needs to purchase about $300,000 of additional insurance, he needs to find an affordable policy. OB. Frank should purchase a variable life insurance policy. It will provide the most protection for the least amount of premium cost. Since Frank needs to purchase about $300,000 of additional insurance, he needs to find an affordable policy. O C. Frank should purchase a universal life insurance policy. It will provide the most protection for the least amount of premium cost. Since Frank needs to purchase about $300,000 of additional insurance, he needs to find an affordable policy. OD. Frank should purchase a term insurance policy. It will provide the most protection for the least amount of premium cost. Since Frank needs to purchase about $300,000 of additional insurance, he needs to find an affordable policy. d. What would happen to Frank's group life insurance if he leaves his present job? (Select the best choice below.) O A. If Frank left his present job, his employer-provided life insurance would end. This risk is a reason to have a risk pooling policy to avoid the greater risk of death occurring with no life insurance protection. OB. If Frank left his present job, his employer-provided life insurance would continue until he found new job with a group policy. This risk is a reason to have an emplyer-provided life insurance policy to avoid the greater risk of death occurring with no life insurance protection. O c. If Frank left his present job, his employer-provided life insurance would end. This risk is reason to have a renewable or convertible term policy to avoid the greater risk of death occurring with no life insurance protection. OD. If Frank left his present job, his employer-provided life insurance would continue until his death. This is a reason not to have renewable or convertible term policy, because it would be spending more money than necessary. e. What could happen to the Kampes' children if Frank or Wendy should die without adequate life insurance coverage? (Select the best choice below.) O A. In the event of the death or Wendy or Frank, without adequate life insurance coverage there would be limited funds provided for the children's living expenses, or for the achievement of specific financial goals (e.g., a college education). This could cause a drop in the children's standard of living. OB. In the event of the death or Wendy or Frank, without adequate life insurance coverage there would be limited funds provided for the children's living expenses. However, their college education would be paid for in full through Social Security Survivors' Benefits. This could cause a drop in the children's standard of living, until they went to college. OC. In the event of the death or Wendy or Frank, even without adequate life insurance coverage, there would be unlimited funds provided for the children's living expenses. However, once they reached age 18, they would no longer receive any money to help with living expenses or college. This could cause a drop in the children's standard of living upon reaching age 18. OD. In the event of the death or Wendy or Frank, without adequate life insurance coverage there would be limited funds provided for the children's living expenses, or for the achievement of specific financial goals (e.g., a college education). This would improve the children's standard of living. Wendy and Frank Kampe, 30 and 35, are considering the purchase of life insurance. Wendy doesn't have any coverage whereas Frank has a $145,000 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 $53,000. From their income, they save $7,200 a year. The rest goes for expenses. The couple estimates that the children will be financially dependent, except for college costs, for about another 15 years. Once the children are in college, Wendy assumes their annual expenses will be $61,568. In preparation for a visit with their insurance agent, the Kampes have estimated the following expenses if Frank were to die They also anticipate, should Frank die, receiving $8,100 a year in Social Security survivor's benefits until the youngest child turns 18, and $5,000 annually in pension funds, until Wendy turns 80. Wendy projects her gross annual income to be $39,000 after her business expansion. Once the children are self-supporting, Wendy wants to plan a spousal life income, that is, funds to make up the difference between her income and pension benefits and her expenses, for 15 more years, from age 45 to 60. Lastly, she wants to plan on $31,000 a year in retirement income for another 20 years, from age 60 to 80. She anticipates receiving a 5 percent after-tax, after-inflation return on their investments. To date, the Kampes have accumulated a total of $106,000 of assets, not including $46,000 of home equity. Their assets include $10,000 in emergency funds, $12,000 in IRA funds for Wendy, $33,000 in other investments, and $51,000 in Frank's 401(k) plan. a. What method should the Kampes use to determine how much insurance they need? b. Should Wendy purchase an insurance policy? Why or why not? If so, what type of policy would you recommend for Wendy? (Select the best choice below.) O A. Yes, Wendy should purchase life insurance, because first, although she currently earns less than what Frank does, she is still contributing to household income and her salary would be missed if she were to die. Second, Wendy undoubtedly provides numerous household services and child care that would likely have to be replaced with paid help if she were to die. Funds need to be available to help Frank cover this potential expense. Term insurance would provide pure insurance protection for Wendy at a relatively low cost. OB. No, Wendy should not purchase life insurance, even though she currently earns less than what Frank does, she is still contributing to household income and her salary would be missed if she were to die. However, Wendy undoubtedly provides numerous household services and child care that would likely have to be replaced with paid help if she were to die. Frank would need to get a raise to cover this potential expense. Term insurance would provide pure insurance protection for Wendy at a relatively low cost. O C. No, Wendy should not purchase life insurance, because first, she currently earns less than what Frank does. Although she is still contributing to household income, her salary would not be missed if she were to die. Second, Wendy undoubtedly provides numerous household services and child care that would likely have to be replaced with paid help if she were to die. Funds need to be available to help Frank cover this potential expense. Term insurance would provide pure insurance protection for Wendy at a relatively low cost. OD. Yes, Wendy should purchase life insurance, because first, she currently earns more than what Frank does, and her salary would be missed if she were to die. Second, Wendy undoubtedly provides numerous household services and child care that would likely have to be replaced with paid help if she were to die. Funds need to be available to help Frank cover this potential expense. Term insurance would provide pure insurance protection for Wendy at a relatively low cost. c. What type of life insurance policy would you recommend that Frank purchase? (Select the best choice below.) O A. Frank should purchase a whole life insurance policy. It will provide the most protection for the least amount of premium cost. Since Frank needs to purchase about $300,000 of additional insurance, he needs to find an affordable policy. OB. Frank should purchase a variable life insurance policy. It will provide the most protection for the least amount of premium cost. Since Frank needs to purchase about $300,000 of additional insurance, he needs to find an affordable policy. O C. Frank should purchase a universal life insurance policy. It will provide the most protection for the least amount of premium cost. Since Frank needs to purchase about $300,000 of additional insurance, he needs to find an affordable policy. OD. Frank should purchase a term insurance policy. It will provide the most protection for the least amount of premium cost. Since Frank needs to purchase about $300,000 of additional insurance, he needs to find an affordable policy. d. What would happen to Frank's group life insurance if he leaves his present job? (Select the best choice below.) O A. If Frank left his present job, his employer-provided life insurance would end. This risk is a reason to have a risk pooling policy to avoid the greater risk of death occurring with no life insurance protection. OB. If Frank left his present job, his employer-provided life insurance would continue until he found new job with a group policy. This risk is a reason to have an emplyer-provided life insurance policy to avoid the greater risk of death occurring with no life insurance protection. O c. If Frank left his present job, his employer-provided life insurance would end. This risk is reason to have a renewable or convertible term policy to avoid the greater risk of death occurring with no life insurance protection. OD. If Frank left his present job, his employer-provided life insurance would continue until his death. This is a reason not to have renewable or convertible term policy, because it would be spending more money than necessary. e. What could happen to the Kampes' children if Frank or Wendy should die without adequate life insurance coverage? (Select the best choice below.) O A. In the event of the death or Wendy or Frank, without adequate life insurance coverage there would be limited funds provided for the children's living expenses, or for the achievement of specific financial goals (e.g., a college education). This could cause a drop in the children's standard of living. OB. In the event of the death or Wendy or Frank, without adequate life insurance coverage there would be limited funds provided for the children's living expenses. However, their college education would be paid for in full through Social Security Survivors' Benefits. This could cause a drop in the children's standard of living, until they went to college. OC. In the event of the death or Wendy or Frank, even without adequate life insurance coverage, there would be unlimited funds provided for the children's living expenses. However, once they reached age 18, they would no longer receive any money to help with living expenses or college. This could cause a drop in the children's standard of living upon reaching age 18. OD. In the event of the death or Wendy or Frank, without adequate life insurance coverage there would be limited funds provided for the children's living expenses, or for the achievement of specific financial goals (e.g., a college education). This would improve the children's standard of living

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