Darrell and Lena Jennings are a two-income couple in their early 30s. They have two children, ages 6 and 3. Darrell’s monthly take-home pay is $3,600, and Lena’s is $4,200. The Jennings feel that, because they’re a two-income family, they both should have adequate life insurance coverage. Accordingly, they are now trying to decide how much life insurance each one of them needs.
To begin with, they’d like to set up an education fund for their children in the amount of $120,000 to provide college funds of $15,000 a year—in today’s dollars—for four years for each child. Moreover, if either spouse should die, they want the surviving spouse to have the funds to pay off all outstanding debts, including the $210,000 mortgage on their house. They estimate that they have $25,000 in consumer installment loans and credit cards. They also project that if either of them dies, the other probably will be left with about $10,000 in final estate and burial expenses.
Regarding their annual income needs, Darrell and Lena both feel strongly that each should have enough insurance to replace her or his respective current income level until the youngest child turns 18 (a period of 15 years). Although neither Darrell nor Lena would be eligible for Social Security survivor’s benefits because they both intend to continue working, both children would qualify in the (combined) amount of around $1,800 a month. The Jennings have accumulated about $75,000 in investments, and they have a decreasing term life policy on each other in the amount of $100,000, which could be used to partially pay off the mortgage. Darrell also has an $80,000 group life insurance policy at work and Lena a $100,000 group life insurance policy.