University of Central Florida (UCF) FIN2100 Personal Finance and Investments Midterm 2 Practice Exam

The recommended calculation for the Easy Method to determine life insurance needs involves taking the current income and multiplying it by 7, and then adjusting this figure to 70%. This approach is designed to provide a straightforward estimate of the life insurance coverage needed to maintain a family's standard of living in the event of an untimely death.

By multiplying current income by 7, this method seeks to assess the future income that would need to be replaced. The subsequent adjustment to 70% accounts for the idea that not all income needs to be replaced in full, as living expenses typically decrease in certain areas after a loss, due to factors such as a reduction in overall living expenses or changes in tax liabilities.

This calculation method is widely recognized for its simplicity and its ability to provide a quick estimate without delving deeply into more complex financial planning considerations, making it accessible for individuals who may not have extensive financial knowledge.