FINANCIAL PLANNING CASES their life insurance needs. Harry and Belinda are bas i

Question

FINANCIAL PLANNING CASES their life insurance needs. Harry and Belinda are bas ing their calculations on a projected 4 percent rate of return after taxes and inflation. They also estimate the following expenses: $10,000 for final expenses, $6000 CASE 1 The Johnsons Change Their Life Insurance Coverage Harry and Belinda Johnson spend $15 per month on for readjustment expenses, and $5000 for repayment of life insurance in the form of a premium on a $10,000, paid-at-65 cash-value policy on Harry. Belinda has a group term insurance policy from her employer with a face amount of $85,500. By choosing a group life insur- ance plan from his menu of employee benefits, Harry now has $39,000 of group term life insurance. Harry and Belinda have decided that, because they have no children, they could reduce their life insurance needs by protecting one another's income for only four years, (b) Based on your response to the previous question. assuming the survivor would be able to fend for him- self or herself after that time. They also realize that their savings fund is so low that it would have no bearing on short-term debts. (a) Should the $3000 interest carnings from Harry's trust fund be included in his annual income for the purposes of calculating the likely dollar loss if he were to die? (See the discussions about the Johnsons in Chapter 3 beginning on page 86.) Explain your response. how much more life insurance does Harry need Use the Run the Numbers worksheet on page 353 to arrive at your answer

Explanation / Answer

1.a) Yes, $3,000 interest earning from Hary's trust fund should be included in his annual income for the purposes of calculating the likely dollar loss if he was to die.

Reason for the same is as follows:

As, Belinda is paying a premium of $10,000 and its face value is 85,500. If due to any condition he will die then automaticaly insurance company ahs to pay the whole life covered amount. If he will face the loss then he has to cover the amount by paying his own interest i.e. $3,000. The income is for four years only. After that the condition may arise how he will pay insurance.

b) The more amount he will need is $20,500. i.e. 85,500-65000

c) Additional Life insurance needed is same as above i.e. $20,500.

calculation: premium 65*10,000=65,000

Face Value= 85,500

so, 85,500-65,000=$20,500.

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