Insurance case study question?
Jay, age 27, and Mary, age 25, were recently married. Jay has just become a CPA and is working for TaxFast as a tax preparer and staff accountant. His annual salary and bonus is $50,000. Mary is a high school teacher, earning $35,000 per year. They have recently made an offer, which was accepted, on a home costing $200,000. The couple has obtained a commitment from a lender for a loan of $190,000 on a first mortgage with a fixed rate for 30 years and a second mortgage for the remaining $10,000 which will be repaid in 5 years. The home is new, but the basement is unfinished. Jay and Mary plan to finish the basement over the next 2 or 3 years as time and money allow. Both are very capable of doing the finishing work without hiring outside help. It is anticipated the materials cost will be $20,000, and the value of the home will increase $30,000 when the finishing is completed. The couple plan on having two or three children over the next 10 years. They assume the children will go on to 4 years of college.
Mary owns a 2007 Chevy HHR with a loan of $9,000 and Jay owns a 2006 Saturn with a loan of $5,000. Both have excellent driving records.
Mary’s employer provides a Cafeteria Plan with choices of benefits including life insurance, single health insurance, dental insurance, long term care insurance, long term disability insurance, daycare, and 401K. The employer will pay the cost of any two of the benefits, and if she desires more benefits, can purchase them.
Jay’s employer provides family health insurance, family dental insurance, and 401K. Long term disability insurance and long term care insurance can be purchased.
Other facts to consider:
Student Loans: Jay $25,000, Mary $15,000
Home is not in 100 year flood plain, but area was flooded in severe flood of 1997
Lender does not require flood insurance, but premium would be $300/yr
Rate for H03 homeowner policy $1,260 per year. If replacement cost coverage
on contents is purchased rate is $110 higher, replacement cost coverage
on house would be an additional $200
Rate for liability insurance on autos $240 per year each, $100 deductible
comprehensive and $250 deductible collision $310 per year each; $250
deductible comprehensive and $500 deductible collision $240 per year
each.
Life insurance rates per year(rate same for Jay or Mary) (must add $50 policy discount fee to each policy)
30 year decreasing term $.75 per thousand
20 year level term $1.25 per thousand
Annual renewable term $.60 per thousand
Whole Life $3.10 per thousand
First to die coverage 20 year level term $1.75 per thousand
Jay and Mary are your friends and ask your advice concerning a possible insurance program to protect them. They are dealing with an experienced insurance agent, but would like your input. Consider and discuss the following based on the above facts and your knowledge of insurance and risk management:
1.How should Jay and Mary structure their benefits from their employers?
2.What coverage’s would you recommend for auto insurance?
3.What coverage’s would you recommend for homeowner and flood insurance?
4.Would you recommend life insurance, and if so, explain the type(s) of policies
and amounts you would suggest.
Caffeinated Content
Kansieo.com
You are asking far too big a question for yahoo answers, nobody is going to do your homework for you.
Some of your information doesn’t make sense:
Your life insurance rates are listed per thousand, but life insurance rates operate in bands with the rate decreasing as the benefit increases. For instance, due to the banding, a $499,000 policy might actually be more expensive than a $500,000 policy.
A $240 auto policy?!? Where do these people live? Oh, nobody should have a $100 deductible either.
Recommendations:
1. Banks will require replacement cost on their home, especially with a second mortgage. I always push replacement cost on contents.
2. At their age and debt level, they should not be investing in Whole Life policies, term is just fine. Decreasing term policies are only good for covering a bank loan, they should purchase level terms of 20-30 years. They should probably buy 30 year terms, to make sure that the kids they intent to have in the next 10 years would be covered into college.
3. A flood 4 years ago would convince me to purchase flood insurance, especially for $300 annually.
4. In Mary’s cafeteria plan, I would take LTD definitely, then maybe the 401K. LTC doesn’t make sense since it probably won’t be portable. Health and dental are already provided by Jay’s business.