Sue and Tom Wright are assistant professors at the local university. They each take home about $40,000 per year after taxes. Sue is 37 years of age, and Tom is 35. Their two children, Mike and Karen are 13 and 11.

Question

Were either one to die, they estimate that the remaining family members would need about 75% of the present combined take-home pay to retain the current standard of living while the children are still dependent. This does not include an extra $50/month in child-care expenses that would be required in a single parent household. They estimate the survivor's benefits would total about $1,000 per month in child support.
1) If Sue Wright was to die today, how much would the Wrights need in the family maintenance fund? Use the "needs approach" and explain the reasons behind your calculations.
2) Suppose the Wrights found that both Tom and Sue had a life insurance protection gap of %50,000. Present the steps in sequence how Wrights should proceed to search for protection to close the gap? Both are knowledgable investors. In the past average after-tax returns on their investment portfolio have exceeded the rate of inflation by about 3%.
If Sue were to die today, how much would the Wrights need in the family maintenance fund? Use the "needs approach" and explain the reasons behind your calculations.
Suppose they found that both Tom & Sue had a life insurance protection gap of $50,000. Present the steps in sequence how they should proceed for the protection to close the gap?

What a great set of questions for YOU to explore! :-)

Please check your sources and tell us what you figure out. We'll be glad to critique and comment on your answers.

ji

Answer 1

I currently have this question. I figured it to be $64,228.24 for part one. You can use this figure to compare to yours.