The Harrises Are Proud Parents Of 8-Year-Old Twins

Question

The Harrises Are The Proud Parents Of 8 Year Old Twins They Have Deci The Harrises are the proud parents of 8-year-old twins. They are evaluating whether Tom's current life insurance coverage is sufficient to meet the family's financial needs if Tom were to pass away unexpectedly. Tom is the primary breadwinner earning $45,000 annually, while Brandy earns $15,000 working part-time. Both previously purchased $135,000 policies when the twins were born. Now, with eight years elapsed, they need to reassess their insurance needs based on updated life circumstances and their financial goals. The analysis begins by estimating the amount of income necessary for Brandy and the twins to maintain their standard of living, which they've identified as $45,000 per year for ten years. Additionally, they want to ensure that the twins' college education is fully funded and that their mortgage and other debts are paid off in full. To determine if Tom's current policy amount is adequate, we will analyze whether it can cover these financial goals, considering the family's current income, expenses, and liabilities.

Dr. Jack HW Helper · Accepted Answer

Introduction Life insurance plays a crucial role in providing financial security for loved ones after an individual's unexpected demise. For the Harrises, a family with young twins and a change in circumstances since their initial policy purchase, it is essential to evaluate whether their current coverage aligns with their updated financial goals. This paper models the process of assessing life insurance needs, focusing on the Harrises’ situation, to determine if Tom's existing policy is sufficient or if additional coverage is necessary. Understanding the Family's Financial Goals The Harrises’ primary financial goals include maintaining their current standard of living, funding college education for the twins, and paying off all debts, including the mortgage. To assess whether Tom’s life insurance coverage meets these goals, it is essential to quantify these needs in monetary terms. The key components include: An annual income of $45,000 for ten years to support Brandy and the twins. Funding the twins’ college education fully, which will require estimating future college costs. Paying off the mortgage and other debts completely. Calculating the Needed Income Replacement Assuming Tom's sudden death at age 41, Brandy and the twins would need an income of $45,000 annually for ten years to cover living expenses, educational costs, and debt repayment. Typically, the present value of this income replacement is calculated using a discount rate to account for the time value of money and potential interest earnings. For simplicity, assuming a conservative discount rate of 3%, the present value (PV) of ten years of $45,000 income can be computed as follows: PV = \$45,000 × (1 - (1 + r)^-n) / r Where r = 0.03 and n = 10, leading to: PV ≈ \$45,000 × (1 - (1 + 0.03)^-10) / 0.03 ≈ \$45,000 × 8.5302 ≈ \$384,859 This amount signifies the lump sum needed today to generate a $45,000 annual income for ten years. Funding the College Education Estimating college costs involves current t

The Harrises Are Proud Parents Of 8-Year-Old Twins ✓ Solved

The Harrises Are The Proud Parents Of 8 Year Old Twins They Have Deci

Sample Paper For Above instruction

Introduction

Understanding the Family's Financial Goals

Calculating the Needed Income Replacement

Funding the College Education

Paying Off Debts

Evaluating Existing Life Insurance Coverage

Recommendations and Conclusion

References