If Carly's husband were to die, she and her children could live on $50,100 per year. Carly makes $28,500 annually, and estimates additional income of $8,300 from other sources. How much insurance should she purchase on her husband to cover the shortfall, assuming a 17.7% prevailing interest rate? (Round to nearest $1,000)

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Quizplus · Accepted Answer

To cover the shortfall, Carly needs to make up the difference between her annual needs ($50,100) and her own income plus other sources ($28,500 + $8,300 = $36,800). The shortfall is $50,100 - $36,800 = $13,300. To find out how much insurance she should purchase, divide the annual shortfall by the interest rate: $13,300 / 0.177 = $75,141.24, which rounds to $75,000.

If Carly's Husband Were to Die, She and Her Children