Buying Insurance

Lesson 4: Personal Life Insurance

Exercises Lesson 4

Consider the following. Your friend Lucille is 49 years old. She is unmarried and has no surviving family. She has a high paying job with a real estate management firm, and contributes regularly to her retirement plan. She owns her own condominium, the mortgage on which will be paid off in 5 years. She takes public transportation to work, so owns a 5 year old car which is paid for. She has no life insurance at all.

You have another friend, Alice. She is 31 years old, married, with two children ages 2 and 6. Both she and her husband, Tom, work full time. Their combined incomes total $80,000 a year. They recently purchased a new larger home in an upscale area. They have a 30 year mortgage on this home. Tom drives a new SUV which is financed. Alice drives a three year old minivan which has 2 more years to go on the financing. Despite their best intentions, they find it very difficult to save any money, though they do manage to hold their credit card debt to $2000 or less. Tom has a $50,000 term life insurance policy through his work. Alice has a $10,000 permanent life insurance policy her parents purchased for her when she was a child.

1. Is Lucille a good candidate for life insurance? Why? If not, why not? Is there an alternative she might want to consider? Why?

2. Should Alice and her husband Tom be considering purchasing additional life insurance? If so, why? What dollar amounts might be appropriate or her? What amounts for him? Why? What kind of life insurance might each of them be considering?

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