Template:Life Insurance Calculator Exercise Answer Key

From Planipedia

 

Contents 1 Question One: 1.1 Answer: 2 Question Two: 2.1 Answer:

Question One:

Your retired clients, the Blacks, want to know the probable costs to replace 20% of Walter’s income, until his age 64, in the event of his death. When asked what lump sum costs they may expect, they identified {{{Funeral Expenses}}} in funeral expenses and another {{{Unforeseeable Costs}}} in unforeseeable costs.

Answer:

Select a set of retired clients from the Client Search page, for which you have already completed the Life Planning process flow.

In order to upload as much completed information as possible to the calculator, click the drop-down menu beside Scenario and choose the client’s Death. Immediately, the following fields will have changed from default values, to data already entered on other screens: Current Age, Current Earned Income, Replace Income to Age, Inflation, Current Insurance Coverage and Lump Sum Benefits. However, there is still some data entry to be completed:

1. The Percentage to Replace Salary field should be set to 20% as they indicated.
2. The Replace Income to Age should be set to age 64.
3. The After Tax Rate of Return is defaulted to the client’s inflation assumption plus 2.0%.
4. They wanted to include the immediate expense of the funeral for {{{Funeral Expenses}}}, and another {{{Unforeseeable Costs}}} for unforeseeable expenses, so set the Lump Sum Costs field to the total of {{{Combined Total1}}}.
5. The Blacks did not identify any other Revenues per Year, so this can remain at zero.
6. Click Calculate at the bottom of the screen.
7. Click Save once the results have populated to save the scenario.

Question Two:

Your client feels that in the event of his wife’s death he would only need to replace 40% of her income, for a period of 5 years, since they are without children. However, he felt he would have significant lump sums costs that he wanted to plan for including: {{{Funeral Expenses}}} for funeral expenses, as well as moving expenses of about {{{Moving Expenses}}} since he would want to move closer to his family.

How much capital does he require at an after-tax rate of return of:

• 4.0%?
• 5.0%?
• 6.0%?

Answer:

Select a set of clients from the Client Search page, for which you have already completed the Life Planning process flow. Set the drop-down menu option under Calculators to Life Insurance Calculator.

In order to upload as much completed information as possible to the calculator, click the drop- down menu beside Scenario and choose the wife’s Death. Immediately, the following fields will have changed from default values, to data already entered on other screens: Current Age, Current Earned Income, Replace Income to Age, Inflation, Current Insurance Coverage and Lump Sum Benefits. However, there is still some data entry to be completed:

1. The Percentage to Replace Salary field should be set to 40% as the husband indicated.
2. The Replace Income to Age should be set to be the age 5 years from the wife’s current age
3. The After Tax Rate of Return is defaulted to the client’s inflation assumption plus 2.0%. But since we want to know the shortfall at 4.0%, 5.0% and 6.0%, we will set this field to the midway value of a 5.0% after-tax rate of return.
4. The husband wanted to include the immediate expenses of {{{Funeral Expenses}}} for a funeral and {{{Moving Expenses}}} for moving. This totals {{{Combined Total2}}}, so set the Lump Sum Costs field to {{{Combined Total2}}}.
5. They did not identify any other Revenues per Year, so this can remain at $0.
6. Click Calculate at the bottom of the screen.