C.T. Bauer College: Life Insurance Case Study Analysis Report

This case study examines the life insurance needs of the Smith family, consisting of John, Jane, and their three children. John earns $150,000 annually with a 6% employer contribution, while Jane earns $75,000 with a 3% contribution. The analysis calculates the required insurance coverage using three different methodologies: a rule of thumb based on income, considering debt, funeral expenses, income, mortgage, and education costs (DIME). The solution presents detailed calculations for each method, taking into account the family's debts, mortgage, and the need for funds for the children's education, providing a comprehensive understanding of the family's financial protection requirements. The case study is designed to determine the adequate amount of insurance coverage needed to secure the family's financial future in the event of the death of either parent. The analysis considers the family's current financial situation, including income, debts, and future expenses like college tuition, to arrive at a suitable insurance coverage amount.

Life Insurance
In the present context, the family consists of 5 members with two working members with an annual
salary of $ 1,50,000 and $ 75,000 respectively for John (40 Years old) and Jane (30 Years old). In
addition, companies in which they work contribute 6 % and 3 % of their respective salaries. They
have three children Joseph, Sara and Kevin who are minors. The present report deals with the
insurance cover that is required for the family.
Amount of Insurance
Rule of Thumb 1: 10 times the present annual income of the family without taking the
contribution of employer
Under this methodology, the present annual income of the family has been taken into consideration
which is approximately $ 2,25,000. Accordingly, the amount of insurance cover that shall be required
stands at $ 22,50,000/-
Rule of Thumb 2: 10 times the present annual income of the family without taking the
contribution of employer plus the provision of $ 1,00,000 for child college fees
Under this methodology, the present annual income of the family has been taken into consideration
which is approximately $ 2,25,000. Accordingly, the amount of insurance cover that shall be required
stands at $ 22,50,000/-. Further, there are three children an addition of 3,00,000 $ shall be made.
Thus, the amount of insurance cover required shall be $25,50,000/-
Rule of Thumb 3: Debt and Funeral Expense, Income, Mortgage and Education Cost (DIME)
The computation of insurance cover under the third rule of thumb has been presented as under:
Sl No Particulars Amount
1 Debt and Funeral Expenses 30000
2 Income 6375000
3 Mortgage 488000
4 Education Cost 300000
Total 7193000
5 Savings 245000
6 Net Insurance Required 6948000