3. Insurance

a) Michael says, I and Mary are in good health and fairly young, we dont think we need any life

insurance. Evaluate the above statement considering his familys situation.

b) Calculate how much life insurance you suggest Michael should buy.

c) Identify one policy (How long, how much, type) and the company (Eg, Geico, State Farm, MetLife)

that Michael should buy life insurance from.

Michael and Mary Gordon Family Michael and Mary Gordon are developing a financial plan to accomplish their goals and objectives. They have great aspirations for the future, however are concerned about their current financial situation. Assume today's date is January 1, 2017 Personal Background and Information Michael Gordon (Age 32): Michael is a Vice President of business development at Cornerstone, LLC, a company that helps firms with their digital presence. He has been employed there since its founding, 8 years ago. The company faces heavy competition and its profitability has been erratic. His job however, is fairly secure. His annual salary is $85,000. He is entitled to a performance bonus of 20-30% of his salary. Owing to industry conditions and poor company profitability, no bonus was paid for the last two years. He is in good health with no history of illness and has never smoked. Mary Gordon (Age 30): Up until Sam was born, Mary was a web designer at a digital design company. She is uncertain when she will return to work. She is in good health with no history of illness and has never smoked. The Gordons: Michael and Mary have been married for 7 years. They have two children, Max and Sam. Michael's mother, Carol lives with the Gordons. They have a no criminal record and have a clean financial history. Family Max is 6 years old and is in 1st grade. He goes to a public school near where the Gordons live. He has shown a strong interest in music and his parents are considering enrolling him for music lessons. Sam is 4 years old. She attends pre-school. Carol, 68 years, is Michael's mother. She had a heart attack two years ago, and has been living with the Gordons since she left the hospital. She is retired and uses income from her investments and social security income to meet her living expenses. She did not qualify as a dependent of the Gordons (For Tax purposes) in 2016. She is concerned that her investments may not perform well in the future and Michael and Mary may have to provide financial support. John and Jessica Paulson are Mary's parents. They are in good health and have offered to help pay for Max and Sam's tuition through the eighth grade, if required. They are retired, financially secure and travel often. Mary is their only child. Other Financial Details Michael and Mary have FICO Scores of 710 each. They expect their investment portfolio to earn 8% over the long term They file their taxes 'Married Filing Jointly'. They take the standard deduction, have 4 exemptions and have child tax credit for each of their two children. Michael has a 401(K) plan at work. His company matches his contributions up to 3% of his salary. STATEMENT OF CASH FLOW (2019 Expected) $85,000 Michael's Salary Investment Income Interest Other Income Total Investment Income $500 $600 $1,100 TOTAL INCOME $86,100 Pre Tax Contributions 401(K) Contributions Health insurance premiums TOTAL PRE-TAX REDUCTIONS $4,800 $1,200 $6,000 Taxes* Federal State TOTAL TAXES $7,025 $1,250 $8,275 Living Expenses Rent Food & Outside Meals Clothing Child Care Entertainment & Travel Utilities & Phone Auto Maintenance Church Contributions TOTAL LIVING EXPENSES 24000 12500 4500 2500 7650 3600 1500 500 56750 TUITION & EDUCATION 12500 Other payments Car Payment (Loan and Insurance) 4400 TOTAL OUTFLOW $87,925 2+3+4+5+6 (7) NET CASH FLOW ($1,825) 1-7 *Michael takes the standard deduction, and child tax credit for his two children Page 3 of 7 INFO 209 Personal Finance Project STATEMENT OF FINANCIAL POSITION (Jan 1, 2019) ASSETS Joint Checking account Joint Savings account TOTAL LIQUID ASSETS $1,500 $1,000 $2,500 Section 401(K) Vested Plan* Certificates of deposits (CDs)** TOTAL INVESTMENTS $43,000 $25,000 $68,000 Automobile Jewelry Furniture/Household OTHER PERSONAL ASSETS $15,000 $13,500 $60,000 $88,500 TOTAL ASSETS $159,000 LIABILITIES & NET WORTH Credit Cards*** Car Loan $5,000 $9,000 TOTAL LIABILITIES $14,000 GORDON FAMILY NETWORTH $145,000 TOTAL LIABILITIES & NET WORTH $159,000 * Michael's 401 (K) is 100% invested in the stock of his company, Cornerstone, LLC. ** CDs are earning 2% per year and are for 12 months ending October 2018. They will lose interest earned if they redeem early *** Credit Card APR: 28%. Credit Limit $5000 Page 4 of 7 INFO 209 Personal Finance Project