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Using the given information make an estimate of the amount of insurance to be carried using the 'Needs Approach' & the Capital Retention Approach."  Suppose a pretax interest rate of 6 percent, a tax rate of 30percent, no inflation and that Mr. Greenleaf's earnings will remain constant.

Current cash needs:

Final expenses


Emergency Fund


Mortgage Fund


Notes and Loans Payable


Educational Expenses (NPV)*

Charles (age 18) $


Tiffany (age 14) $


Mark (age 8) $


 Total Educational Expenses

The college expenses are estimated at 20,000dollar a year for four years for each child.  The easiest way to estimate the present value of this total of 240,000 dollar is to compute the present value of $20,000 payable over the four years for Charles, age 18 this will be the amount that he needs now.  Then discount a similar sum an additional four years for Tiffany, age 14, and an additional ten years for Mark, age 8.

Total Current Cash Needs:



Plus Capital Needs:

Needs Approach

Capital Retention

For Spouses income:



(Use 60% of joint income)



$9200 monthly for 42.5 years



(Her life expectancy is 84.5)



After Tax interest Rate___%



Use a 30% Tax Rate



Less: The Present Value

Wife's wages of $3,917



Monthly to age 66



(Use the after tax interest rate



Social Security Payments



Survivor's benefits to Mark's age 18.



$1600 monthly



(Use the pretax interest rate)



Retirement income at Wife's age 66






(Use the after tax interest rate)



Wife employer pension



$1300 monthly at age 66



(Use after tax interest rate)



Total Capital requirements



Total Capital Requirements



And Current cash needs






Less Capital Assets



Life Insurance















Surplus or (Deficit)



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  • Category:- Basic Finance
  • Reference No.:- M917177

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