Adam and Cassie Porterfield, a healthy couple in their mid-30's, were delighted when Adam landed a new job with a promotion and increased salary. But they were disappointed to learn that he would not be eligible for benefits for 90 days. The company offers a comprehensive package of health insurance, vision insurance, dental insurance, life insurance (1.5 times salary at no premium charge), short- and long-term disability insurance, and long-term care insurance. An employee can choose how to spend the employer-provided premium dollars to purchase any combination of insurance or additional life insurance.

a. In the mix of premiums the Porterfields can spend, how should Adam and Cassie rank Adam's insurance needs among the seven types of coverage offered? What factors should they consider?

b. Should Adam consider purchasing more life insurance than the company-provided free benefit? What two methods could he use to assess his needs relative to his total life insurance coverage?

c. Name two or three important factors to consider when purchasing disability insurance. Should Adam first consider short-term or long-term disability?

d. Should the Porterfields consider changing their company-provided insurance benefits if they become parents? Defend your answer.

a. The factors Adam and Cassie should consider in ranking Adam's insurance needs are:(Select all the choices that apply.)

A.

the cost of long-term care for Adam's parents.

B.

income replacement protection.

C.

protection of Adam's earning power for today and the future.

D.

the cost of getting braces for their children, if they have any in the future.

E.

protection against the increasingly sophisticated and costly system of health care.

F.

Adam's age and how soon he may require long-term care.

Adam and Cassie should rank Adam's insurance needs as: (Select the best choice below.)

A.

health insurance, long-term disability, and the free life insurance.

B.

health insurance, dental insurance, and the free life insurance.

C.

the free life insurance, health insurance, and long-term disability.

D.

long-term disability, health insurance, and long-term care insurance.

b. Should Adam consider purchasing more life insurance than the company-provided free benefit?(Select the best choice below.)

A.

Yes, because at this time, the Porterfields fit the profile of "married, double-income couple, with no children" for which life insurance is a necessity, as there is concern that the surviving spouse would want to re-marry.

B.

Yes, because at this time, the Porterfields fit the profile of "married, double-income couple, with no children" for which life insurance is a necessity, as there is the risk that they would lose their coverage with unemployment.

C.

No, because at this time, the Porterfields fit the profile of "married, double-income couple, with no children" for which life insurance is not a necessity, unless there is concern that the surviving spouse's lifestyle would suffer.

D.

No, because at this time, the Porterfields fit the profile of "married, double-income couple, with no children" for which life insurance is not a necessity, unless the surviving spouse plans to quit his/her job and travel.

The two methods Adam could use to assess his needs relative to his total life insurance coverage are:(Select the best choice below.)

A.

the earnings multiple approach and the risk pooling approach.

B.

the needs approach and the debt elimination approach.

C.

the earnings multiple approach and the needs approach.

D.

the needs approach and the risk pooling approach.

d.

Some

important factors to consider when purchasing disability insurance are:(Select all the choices that apply.)

A.

Definition of disability: Pick a policy that defines disability as unable to perform your "own occupation" or "normal job" not a policy based on performance of "any occupation" as required by Social Security.

B.

Waiting or elimination period: The shorter the waiting period, the lower the premium. A minimum of a 3-month waiting period is recommended due to the significant savings.

C.

Noncancelable clause: Keeps the policy in force, or renewable, with rate increases.

D.

Waiting or elimination period: The longer the waiting period, the lower the premium. A minimum of a 3-month waiting period is recommended due to the significant savings.

E.

Definition of disability: Pick a policy that defines disability as unable to perform "any occupation" not a policy based on performance of your "own occupation" or "normal job" as required by Social Security.

F.

Noncancelable clause: Keeps the policy in force, or renewable, without rate increases.

Should Adam first consider short-term or long-term disability?(Select the best choice below.)

A.

Adam should first consider short-term disability because it offers limited protection (e.g., maximum of 2 years) from financial disaster. Long-term disability offers protection to a specified age (e.g., 65 or 70) or for a lifetime.

B.

Adam should first consider long-term disability. Short-term disability offers limited protection (e.g., maximum of 2 years) from financial disaster. Long-term disability offers protection to a specified age (e.g., 65 or 70) or for a lifetime.

C.

Adam should first consider short-term disability. Short-term disability offers limited protection (e.g., maximum of 2 years) from financial disaster. Long-term disability offers protection to a specified age (e.g., 65 or 70) or for a lifetime.

D.

Adam should first consider long-term disability because it offers limited protection (e.g., maximum of 2 years) from financial disaster. Short-term disability offers protection to a specified age (e.g., 65 or 70) or for a lifetime.

e. Should the Porterfields consider changing their company-provided insurance benefits if they become parents? Defend your answer.(Select the best choice below.)

A.

Depending on the maternity and child coverage of the policy, they may need to change to a different policy offered by the same employer, or change family coverage from one parent to the other. Additionally, the Porterfields should increase their life insurance protection, and if they have not purchased adequate disability insurance, this coverage should be evaluated. The addition of dependents makes income protection even more important. A thorough review of how to cost effectively maximize employer-provided benefits is warranted. Options to purchase additional coverage, where needed, should be considered.

B.

Depending on the maternity and child coverage of the policy, they may need to change to a different policy offered by the same employer, or change family coverage from one parent to the other. Additionally, the Porterfields should decrease their life insurance protection, and if they have not purchased adequate disability insurance, this coverage should be evaluated. The addition of dependents makes income protection less important. A thorough review of how to cost effectively maximize employer-provided benefits is warranted. Options to purchase additional coverage, where needed, should be considered.

C.

Depending on the maternity and child coverage of the policy, they may need to change to a different policy offered by the same employer, or change family coverage from one parent to the other. Additionally, the Porterfields should increase their life insurance protection and not purchase disability insurance. The addition of dependents makes income protection even more important. A thorough review of how to cost effectively maximize employer-provided benefits is warranted. Options to purchase additional coverage, where needed, should be considered.

D.

Depending on the maternity and child coverage of the policy, they may need to change to a different policy offered by the same employer, or change family coverage from one parent to the other. Additionally, the Porterfields should increase their disability insurance protection, and if they have not purchased adequate dental insurance, this coverage should be evaluated. The addition of dependents makes income protection even more important. A thorough review of how to cost effectively maximize employer-provided benefits is warranted. Options to purchase additional coverage, where needed, should be considered.