Computation of amount of insurance to be carried

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Reference no: EM1311668

Computation of Amount of Insurance to be carried using Human Value approach

Using the following information, calculate the amount of insurance that Mr. Greenleaf should carry using a "human life value" approach:
Mr. Greenleaf's current annual income is $137,000. Of this the cost of medical insurance, income taxes and social security taxes are $51,700. His cost of self-maintenance is $20,000. He is now 45 years old and expects to work to age 66. His wife is age 40 and expects to work to age 66. Her current annual income is $47,000. Her life expectancy is 84.5 years. Assume no growth in Mr.Greenleaf's future income.
In order to make this computation you have to use a "reasonable discount rate." What are the problems inherent in making this assumption?

For Example:

a) Your estimate using a 6% "reasonable discount rate."

b) Your estimates if you increased or lowered the "reasonable discount rate" by 1%.

Assume that inflation is zero.

Reference no: EM1311668

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