In our meeting, it became apparent that Richard's investment loss was not a solitary act. Richard was very indulgent and paid little attention to his health. He went out on shopping sprees that he and Monica couldn't afford. He was overweight. He used alcohol excessively and smoked. His doctor had warned him of his unhealthy habits including a high cholesterol level, which placed him at risk of a major illness. His work output was excellent, but he often got into verbal arguments with superiors. The result was a reputation as a brilliant but unsteady worker who shifted from job to job often.
Monica, on the other hand, was as steady as Richard was fickle. She was a vegetarian who exercised regularly. Her doctor told her she had the physical condition of a woman 10 years younger. Given Richard's erratic behavior, one would think Monica would be under great stress. When I posed that question to her, she said that she had learned to cope with Richard's behavior.
The couple had no life insurance except for a policy providing one times Richard's salary at work. Monica had often asked Richard to get some additional insurance. His reply was that they did not have enough money. Monica specifically requested that I look at term and whole life insurance and tell her the type and amount of insurance that was appropriate.
As we completed the topic, Richard said he was sorry for his behavior and would "turn over a new leaf." Monica replied that she was not sure Richard could do it.
Questions
1. What do you think of this couple's overall risk profile?
2. What recommendations would you make to improve it?
3. Do you believe these recommendations will be followed?
4. Assuming there is some uncertainty that the advice will be followed, what other recommendation might you make?
5. Do you believe they should have more insurance?
6. Which type would you recommend: whole life or term insurance?