Problem 11.3 -- Kelly is a 35 year old single parent with a one-year-old son. She earns $45,000 a year as a marketing analyst and has employer paid group life insurance worth twice her annual salary. She also participates in her employer’s 401(k) program. She has the following financial assets:
· Checking account $2,000
· IRA Account $8,000
· 401(k) plan $25,000
· Individual life insurance $25,000
· Group life insurance $90,000
Her identified financial needs and objectives include:
· Funeral costs and uninsured medical costs $10,000
· Income support for her son $150,000
· Pay off car loan and credit cards $15,000
· College education fund for her son $150,000
Required:
1. Ignoring Social Security, how much life insurance do you recommend that Kelly purchase to meet her financial needs and objectives?
2. How much of the insurance need would you recommend be term life and how much should be permanent life insurance?
3. If Social Security will pay an $800 per month survivor benefit to Kelly’s son until he is 18 years old (for then next 17 years), how much life insurance do you recommend that Kelly purchase to meet her financial needs and objectives?
4. Format your analysis carefully and show your calculations.
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