life insurance

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Matt and Mallory Bach, both age 32, are married with two sons. Silas is 6 and Cash is 4. Matt is a real estate property manager earning $60,000 per year. Mallory is a yoga instructor earning $40,000 per year. Based on the following facts and ignoring inflation and investment returns, calculate Matt’s life insurance need using the family need method.

  • The Rowes want to be able to replace 80% of income for the deceased spouse until the youngest child reaches age 18 .

  • The Rowes estimate funeral costs and final expenses to be $20,000 for either of their untimely deaths.

  • The Rowes want to establish an education fund for each child in the amount of $100,000.

  • Matt estimates his wife would need half of his annual income as an additional resource to help her through a 6-month readjustment period.

  • The Rowes would like an emergency fund equal to one year’s total family income.

  • The Rowes are concerned about the stability of the Social Security system and want to ignore whatever amount Social Security would provide as a survivor benefit in determination of their life insurance needs.

  • Matt’s employer provides group term life insurance in the amount of 2.5 times his salary.

  • The Rowes’ current investments total $45,000.

  • The Rowes’ debts are as follows:

    • Home mortgage balance: $120,000

    • Auto loan: $15,000

    • Credit card: $3,000

    • Mallory’s student loans: $14,000

    • Matt’s student loans: $16,000

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