Dave and Karen King are a two-income couple in their early thirties. They have two children, ages 6 and 3. Dave's monthly take-home pay is $3,600, and Karen's is $4,200. The Kings want to decide how much additional insurance they would need, if Dave were to die today.

To begin with, they'd like to set an education fund for their children in the amount of $120,000 to provide college funds of $15,000 a year-in today's dollars-for 4 years for each child. Dave wants Karen to have funds to pay off all outstanding debts, including the $210,000 mortgage on their house. They estimate that they have $25,000 in consumer installment loans and credit cards. They also project that after Dave's death, Karen will be left with about $10,000 in final estate and burial expenses.

Regarding their annual income needs, they strongly feel that Karen should have enough insurance to replace Dave's current income levels until the youngest child turns 18 (a period of 15 years). Although Karen would not be eligible for Social Security survivor's benefits, because she intends to continue working, both children would qualify in the (combined) amount of around $1,800 a month. The Kings have amassed about $75,000 in investments, and they have a decreasing term life policy on Dave in the amount of $100,000, which would be used to partially pay off the mortgage. Dave also has an $80,000 group policy at work.

Use worksheet 8.1 to find the additional insurance needed on Dave's life. (Because Karen holds a secure, well-paying job, both agree that she will have plenty of income from Social Security and company pension benefits to take care of herself in retirement. Thus, when preparing the worksheet, assume "funding needs" of zero in Periods 2 and 3.)

Using the amounts computed above, what kind of life insurance policy would you recommend for Dave? Should he continue with the decreasing term policy?