Nicole is a single parent who earns $60,000 per year after taxes. Her household expenses are $50,000 per year. If she were to die, she estimates that death costs would total $10,000. She wants to provide $50,000 for an education fund for each of her twin children, who are currently 10 years old. She does not qualify for Social Security benefits, so she needs $25,000 per year in addition to household expenses for child care for her twins until they reach 18. She currently has savings of $20,000 but should also have an emergency fund (3 months' expenses). Using the financial needs approach, how much life insurance would you recommend?

Question

Quizplus · Accepted Answer

The life insurance needed is calculated as follows: $10,000 for death costs + $100,000 for education fund ($50,000 per child) + $200,000 for child care ($25,000 per year for 8 years) + $12,500 for emergency fund (3 months of $50,000 expenses) - $20,000 savings = $302,500. Adding the $50,000 annual household expenses for 8 years ($400,000), the total is $702,500.

Nicole Is a Single Parent Who Earns $60,000 Per Year