Zac and Mary Johnson are 36 and 34 respectively. Zac has recently been offered a new job as an
IT engineer with a newly created software company that helps churches fully integrate their giving,
attendance, and member data software where he can earn $102,000 per year. Mary currently stays
home and homeschools their two children (Brayden (10) and Cora (7)) although she holds a CPA
license in the state of Indiana. Zac and Mary also have two Mastiffs (Fun and Games). Zac and
Mary have been married for 14 years and currently live in a rural area outside Indianapolis, IN.
Zac and Mary are excited to have just learned that they are expecting their third child. Knowing
his type A personality, Zac begins to feel anxious that he has not done an adequate job of
protecting his family should something happen to him, especially with the anticipation of a third
child.
Zac approaches you in your local men’s bible study and asks to meet with you regarding a review
of his current insurance. He seems rather bothered by where he stands, specifically not knowing
how much life insurance he really should have.
In the course of your follow-up meeting, he gives you the following information:
 Current salary: $102,000
 Annual salary increase: 3.0%
 Retirement Age: 67
 Expected inflation rate: 3%
 Final expenses: $30,000
 Income Tax bracket: 25%
 Monthly social security benefit per child until the child reaches 18: $3,200
 College education costs $25,000 per year per child in today’s dollars starting at age 18 for
four years.
 Education inflation rate: 5%
 Monthly income needs for spouse until last child is age 22: $5,500
 Personal Consumption: 20% of income
 Investment returns expected to be 6%
 Mortgage and debt repayment (as it stands today) is: $285,000
INSTRUCTIONS
Analyze each of the approaches listed below, including detailed calculations, to build a final
recommendation concerning the Johnson’s life insurance needs:
 Human-Life Value Approach
 Needs Approach
 Capitalized-Earnings Approach