Insurance needed to cover capital needs

I have come across the following example:

Cash needs = funeral expenses 10k + emergency fund 15K + student loans 33K + credit card 4K = 62k
rate = (1+r)/(1+g) -1 = 0,98%
Total capital needs: expenses N = 60 (Ella is 30y, expected to live till 90), I/Y=0,98, PMT = 17600 (combined expenses of 35200 divided by two) → PV expenses = 803335,55

Total capital needs = PV expenses - HC of 700K = 103336,55
Total cash needs & capital needs =103336,55 + 62000 = 165336,555
substract savings (40K) & DB plans (3k divided by 2 = 1,5k) = 41,500
→ shortfall = 123835,55

My question is: since we know Ella’s income is 20k per year, she is 30 and plans to work for another 35y, why don’t we calculate the PV of her income, and substract it from expenses?
Is it because this is already included in the HC of the surviving spouse, namely under the 700k?

Thank yoU!

Without seeing the actual question, it seems like a needs analysis approach to insurance and as such you would just focus on meeting the needs of the surviving person, not replacing the income of the dead person. They give you the survivor’s human capital here.

But if you are doing the alternative human life value approach, you would just focus on replacing the missing dead person’s contribution to their combined human capital.

These are 2 alternate approaches to calculating insurance needs. They will tell us in the question which to use.

I understand your point, but the text says that both earn 20k per year. So, to me, this is not about replacing the contribution of the dead person (the husband)… the wife earns just as much. Why has this not been computed?

It has in the 700k. They lump summed the survivor’s human capital for you here. All you need to do is focus on the survivor’s assets compared to their own single needs.

Ah, I see, it is already there. Thanks a lot!

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