Assume you are married and have two children. You want to buy sufficient life in

Question

Assume you are married and have two children. You want to buy sufficient life insurance to take care of your family if you die. Your wife is a homemaker but has college loan of $40000. Your children are teenagers. So you only need to provide the family wth income for the next 10 years. Your household expenses run approximately $30000. Assuming your wife can invest the insurance proceeds at 8%. Calculate the amount of insurance you need tio purchase. Apply the same method and recommend insurance amount to a member of your family. Use appropriate values based on their needs.

Explanation / Answer

Ans;

College Loan = 40000 - Assuming that this loan is interest free and repayable in 10 years in equal installments. Hence EMI payable per year is = 40000/10 = 4000

Yearly household expenses is $ 30000

Hence total yearly expenses to be met is $ 4000+ $30000 = $34000

Insurance proceeds can be invested at 8% p.a basis. Hence the amount of insurance needs to be purchased is = $34000/(.08*10) = $42500

Assuming that a cousin has to meet household expenses of $ 60000 and he needs to provide the family with income for next 5 years. Further, insurance proceeds can be invested at 9% p.a. Hence the amount of insurance that needs to be purchased = $ 60000 /(.09*5) = $ 133333

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