Estimating life insurance needs: A case study Finance Coursework (Coursework Sample)
The paper is about determining insurance needs of an insured person. The task involved answering question (a) and (b)
the instruction was to estimate the amount of insurance needed by a family based on earnings of the insured person
Finance and Accounting
Name
Institution
Estimating life insurance needs: A case study
Young families have goals such as children education, owning a home and going on vacation. However, the dependents may struggle financially if one parent who happens to be a key provider dies. At this point, getting the right amount of life insurance is necessary. While most employers provide life insurance, it is seldom enough to guarantee the financial stability of dependents (Gitman, Joehnk, & Billingsley, 2013). In this case study, Sam and Susan Scully are husband and wife with two children and are considering taking additional life insurance to satisfy long-term family goals.
Question (a)
Sam and Susan estimate the amount of life insurance they need based on the earnings of the insured person. Sam is on full-time employment and is the insured person. The two common methods to estimate their needs are income approach and expense method. The income method takes into account the present value of all the future labor income of the insured person (Steuer, 2019). The approach is provided in the formula below.
…………………………………….. (i)
Where; Et: Labour taxed income of the insured in year t in real dollars
k: After-tax real discount rate
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