13.3 determining the amount of life insurance

All of the following are limitations of the budget method except A) does not consider your family circumstances. B) inflation may cause you to underestimate you needs. C) someone in your household could experience an unanticipated illness. D) your income may not rise over time as expected.

a

How much insurance would be needed in order to provide for a family for 20 years if the pretax income necessary to cover living expenses is $50,000 and the money can be invested at 6 percent? A) $573,500 B) $1,000,000 C) $833,333 D) $2,100,000

a

In the ________ method, life insurance is determined as a multiple of your annual income. A) income B) asset C) balance sheet D) budget

a

The job marketability of your spouse A) would be a factor considered in the budget method of determining life insurance needs. B) is used in the income method of determining life insurance needs. C) is really not that important in determining life insurance needs. D) is the main factor in determining whether or not you even need life insurance.

a

A person earning $75,000 per year has term life insurance at their place of employment equal to their annual income. Using the income method with a factor of 5, how much additional life insurance will s/he need? A) $375,000 B) $300,000 C) $75,000 D) $50,000

b

The budget method is based upon all of the following except A) the amount of debt you owe. B) your annual income. C) the value of your existing savings. D) special expenses you will need.

b

The most accurate method of determining life insurance needs is A) the income method. B) the budget method. C) subtracting your annual income from $1 million. D) having enough insurance to provide $50,000 per year for 20 years.

b

All of the following are true of the income method of determining life insurance needs except it A) is easy to use. B) does not consider your age. C) factors in the number of children in your family. D) doesn't figure in savings or investments.

c

Sam figures it will take $250,000 invested at 6% to provide suitable income to his family for 12 years. He would also like to have $40,000 set aside to educate his two children. Sam's current savings is $20,000. How much life insurance does he need using the budget method? A) $190,000 B) $250,000 C) $270,000 D) $310,000

c

The income method, used to calculate your life insurance coverage, multiplies your current annual income by A) your expenses per month. B) your number of dependents. C) some arbitrary number, such as 10. D) your life expectancy.

c

Using the income method, determine the amount of insurance an individual would need, employing a factor of 10, if their net income is $65,000, their assets total $280,000, their liabilities total $130,000, their two children's anticipated college education needs total $730,000, and their invalid mother's future nursing home expenses total $290,000. A) $2,850,000 B) $1,500,000 C) $650,000 D) $730,000

c

Brad earns $50,000 per year as a manufacturer's rep and his wife, Nancy, earns $100,000 per year as an Oncologist. When they had children, Nancy left her practice to become a full-time mother. The family's expenses are $35,000 per year, which includes an amount being saved for the children's college education. Brad and Nancy have two children, ages 2 and 5. They receive an average return of 6% on their investments. Nancy has retained her active medical license and plans to return to work full-time when the children enter school. Using the budget method, how much life insurance should the family have in the event of Brad's death? A) $344,100 B) $573,500 C) $1,147,000 D) zero

d

The easiest method of estimating your life insurance needs is the A) life cycle approach. B) budget approach. C) financial approach. D) income approach.

d

The income method of determining how much life insurance coverage you need is A) based on future family expenses. B) based on the age of your children. C) based on the amount of your 401(k). D) a good starting point.

d

Using the income method, if Jenny has an annual income of $50,000, debt of $20,000, and a factor of 10, then she should purchase ________ of life insurance. A) $100,000 B) $200,000 C) $300,000 D) $500,000

d

Which of the following will increase your need for life insurance? A) Your spouse graduates from college B) You receive a large inheritance C) Your only child graduates from college D) You get married

d