Tim and Tammy are updating their financial plan and are concerned that they might not have enough life insurance coverage for their family, which includes two children, ages 4 and 10. They have determined that their annual income is $70,000 and their net worth is now $150,000. What is the amount of life insurance they should carry using the easy method?

Question

Quizplus · Accepted Answer

The easy method suggests multiplying the annual income by the number of years that the income will be needed. According to industry standards, a minimum of 10 years is recommended, but many recommend 15-20 years. 
Using the easy method, the amount of life insurance would be:
$70,000 x 15 years = $1,050,000
However, this calculation does not take into account the family's net worth. To calculate the recommended amount of life insurance, subtract the net worth from the previous calculation:
$1,050,000 - $150,000 = $900,000
Therefore, the amount of life insurance Tim and Tammy should carry using the easy method is $343,000.

Tim and Tammy Are Updating Their Financial Plan and Are