Nancy is a widow with two teenager children. Nancy’s gross income is $3700 per m
ID: 2731866 • Letter: N
Question
Nancy is a widow with two teenager children. Nancy’s gross income is $3700 per month and taxes take about 16% of her income. Using the income method, Nancy calculate she will need to purchase about eight times her annual disposable income in life insurance to meet her needs. Therefore, she will need to purchase life insurance in the amount of $298368. Now assume that Nancy’s employer provides her with two times her annual gross salary in life insurance. How much additional insurance should Nancy purchase?
Explanation / Answer
Nancy Gross Monthly Income = $ 3700
Annual Gross Salary = $3700*12 = $44400
Tax on above @ 16% = $7104
Annual Disposable Income = 44400-7104 = $37296
8 times of ADI = 37296*8 = $298368
Nancy employer provides insurance of 2 times of Annual gross salary i.e
$44400*2 = $88800
Balance Insurance required = $298368-$88800
= $209568
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