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.
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Current cash needs:
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Final expenses
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$15,000
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Emergency Fund
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$20,000
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Mortgage Fund
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$207,000
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Notes and Loans Payable
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$42,500
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Educational Expenses (NPV)*
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Charles (age 18) $
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Tiffany (age 14) $
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Mark (age 8) $
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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 $20,000 payable over the four years for Charles, age 18 this will be the amount that he needs now. Then discount a similar sum an additional four years for Tiffany, age 14, and an additional ten years for Mark, age 8.
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Total Current Cash Needs:
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$
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$
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Plus Capital Needs:
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Needs Approach
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Capital Retention
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For Spouses income:
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(Use 60% of joint income)
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$9200 monthly for 42.5 years
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(Her life expectancy is 84.5)
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After Tax interest Rate___%
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Use a 30% Tax Rate
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$
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$
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Less: The Present Value
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Wife's wages of $3,917
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Monthly to age 66
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(Use the after tax interest rate
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Social Security Payments
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Survivor's benefits to Mark's age 18.
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$1600 monthly
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$
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$
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(Use the pretax interest rate)
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Retirement income at Wife's age 66
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$650
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$
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$
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(Use the after tax interest rate)
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Wife employer pension
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$1300 monthly at age 66
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(Use after tax interest rate)
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Total Capital requirements
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$
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$
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Total Capital Requirements
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$
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$
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And Current cash needs
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Total
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Less Capital Assets
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|
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Life Insurance
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$210,000
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Cash
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$15,000
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Investments
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$134,000
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Other
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$61,000
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Total
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$420,000
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$420,000
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Surplus or (Deficit)
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$
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$
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