Concept Assignment #3

Ralph & Cindi are shopping for life insurance.  Here is some basic information you were able to gather about their situation.  Please use this to create a spread sheet for question 1, and questions 2 – 4 can be answered on a word document.

Ralph is 30 years old, Cindi is also 30.  They are planning to retire at his age 65.  Cindi earns $45,000 in net wages per year, while Ralph makes $75,000.  They have 1 son who is 3 years old.  Their goal is to fund $25,000 towards his college tuition.  Their house is not paid off, and they owe $157,000 on the mortgage as they just moved.  Other than that, they are debt free.  They think a funeral might cost $10,000.  If Ralph dies, Cindi’s social security survivor benefit would be $32,000 per year until her death.  Cindi is not confident that social security retirement benefits will still be around for her, so she doesn’t want to count on drawing any retirement benefits.   Ralph has a 401k at work worth $62,000.  They also have $10,000 in a CD.  Presently, they are living on $90,000 per year, but Cindi thinks their expenses would increase if Ralph dies because she would need to hire childcare.  Expect $12,000/year until their son is 16 for the added childcare.  At work, Ralph currently has term life insurance which will pay 1.5 times his salary.

1.       1    .Using the needs analysis method, how much insurance should Ralph buyon his own life if Cindi needs income until age 100?  Create from scratch on your own (do not use a template) an excel sheet that follows the template presented on page 295. 

2.       2.          Now using the multiple of earnings method, how much insurance should he have on his own life?

3.       3.             Ralph & Cindi need guidance.  Using your own terms, not the book, explain to them the difference between term, whole and universal life insurance.

4.       4.            In detail, explain in exact terms what client situations would be most appropriate to recommend each of the 3 policies.

5.       BONUS +5  points : What is the real problem with including the work term policy that Ralph has in this calculation?