Joleene is a single parent with two children and earns $45,000 per year. She is purchasing term life insurance for 15 years until her youngest child is self supporting. Assuming her survivors can receive a 3% after-tax, inflation return on insurance proceeds, use the earnings multiple approach to calculate the face value of Joleen's policy.

Question

Quizplus · Accepted Answer

The earnings multiple approach involves multiplying Joleene's annual income by a factor that considers her age, gender, health status, and other factors. Assuming she is in good health and the factor is 15, the face value of her policy would be:

$45,000 x 15 = $675,000

Next, we need to adjust for inflation and taxes. Assuming an inflation rate of 2% and a tax rate of 25%, the adjusted face value is:

$675,000 / (1 - 0.25) / (1 + 0.02)^15 = $397,548.04

Therefore, the best choice is C.

Joleene Is a Single Parent with Two Children and Earns