Personal Finance: Insurance Protection

Introducing the Family Maintenance Fund

Budgets are extremely important. Previously, we learned the necessity of the income and expense report, as well as the importance of a monthly budget. Today we will discuss the family maintenance fund; which is also a budget that will tell you the estimated amount of support needed for survivors. According to Winger and Frasca, in 2006, “The family maintenance fund is most important of all your insurance protection needs; as it insure the viability of the dependent family unit.” Basically, we will need to find the sum of family expenses and subtract all sources of available income in order to obtain the estimated amount needed for the life insurance coverage. As we begin gathering data for our table, I believe it is best to overestimate expenses. It would be better to have more coverage than needed as opposed to underestimating and later finding out that you do not have enough coverage.

FIGURE 15.2 FAMILY MAINTENANCE FUND

Monthly Survivors' Expenses $5,050.00

Monthly Survivors' Take-Home Pay $3,333.33

Monthly Survivors' Benefits 1,000.00

Total Contribution By Survivors (4,333.33)

Monthly Maintenance Requirement $716.67

Annual Maintenance Requirement $8,600.04

(18 years - youngest child 18-11=7) Term of Fund (years) 7

(Assignment Details return @ 3%) Annual real return 3%

Annuity Factor 6.4172

FAMILY MAINTENANCE FUND $55,188.10

Table Analysis

Remember that we are using the needs approach to insure the viability of the family unit; therefore when calculating survivors’ expenses we need to first multiply the combined income by 75%. Eighty thousand multiplied by 0.75 gives us 60,000. We need to divide this amount by twelve and add in the additional fifty dollars needed for child care expenses in order to arrive at our total monthly survivor expenses of $5,050.00. After calculating our survivor expense we need to calculate...