Case 5 The Butterfield Case URANCE PLANNING MINI-CASE John Butterfield, 49, and his wife Haley Butterfield, 44, live in a relatively new home on the outskirts of Anycity, Anystate. They have been married for 23 years and have three children. Both John and Haley are in excellent health. Their son Troy, age 20, is a baseball player on scholarship at the University of Anystate. Daughter Holly, age 17 hopes to attend State University next fall as a cadet to begin pursuing a career in the Marine Corps The choices of their first two children have allowed the Butterfields to concentrate their college saving goals on Naomi, the youngest at age 13. John and Haley have come to you for help in addressing several insurance planning questions and concerns. Use the following information to conduct a view of their financial situation and use your analyses to answer the questions that follow the case narrative. Assumptions (Valid unless otherwise Specified in Certain es) . Inflation: 3.51 All income and expense figures are given in today's dollars Federal marginal tax bracket 25 State marginal tax bracht: 75 Any qualified plan Retribution growth rates armed to stop at the mandated on this restricte AN num 265 120% BT Teminl Jobs Desktop 1446 Week 12 Butterfield - Insurance (1) A T 6 Case Approach to Financial Planning come Issues John has worked for the last 14 years as an engineer for CNS Design. He has an $$1,000 salary. He would like to retire at age 67. Haley has worked as a CPA for 17 years, the last 14 of which have been out of their home. Though her earnings vary from month to month, she estimates that she will earn $65.000 this year. She wants to retire at the same time as John. They also assume that their salaries will increase, on average, by 3.5% per year over their working lives. This year they anticipate eaming $600 in interest and non-qualified mutual fund dividend distributions, which will be reinvested. Expense Issues Table V1.5 provides a summary of the Butterfields fixed (non-discretionary) and variable discretionary) expenses. Table V1.5 Summary of Expenses Expense Pratax health care premiums 401 contributions Keogh contributions Mortgage Home equity loan Auto loan 1 Auto loan w2 Credit cards and installeret debt Autoane Homowe Day Instance taxi wa IRA conti IN Sutt Teine DNV Amount $200 $540 $7800 $1,600 $625 $310 $500 $2.100 $1.100 5825 5200 $400 5750 5750 Frequency Monthly Monthly Annually Monthly Monthly Monthly Monthly Angel Setmanual Annual Monthly A 15 570 $1.500 $5.000 $1120 120% Resume Templ STOL Jobs Desk To A To VIL Travel costs for first child while in college Groceries Food away from home $1,200 $75 $3,400 Annual Weekly Annual 7/8/20146 https://berkeley.counseload Financial Planning Case Studies 767 Real estate taxes Household maintenance Uusities Clothing Dry cleaning Personal care Furnishing Allowances Medical copayments Prescriptions $1,300 $2,700 $175 $1,500 $50 $500 $1,000 $2,000 $700 $250 $2,500 5400 ST 580 100 Anna Annual Monith Annual Month Anna Anna Annual Annual Al Anna Semia Personal property tax Banking fees blnnis ) lth M C Anna Monthly Monthly 1000 52100 A mehr 1207 STOL Resume Templ AM.png ate_So...p.docx Jobs search.xlsx Desktop Screen_shots . Jlowances Medical copayments Prescriptions Gas Personal property tax Banking fees IRA fees Travel Contributions to church Vacations Christmas gifts $2,000 $700 $250 $2,500 $400 $75 $80 $100 $125 $3,000 $2,400 Annual Annual Annual Annual Semiannual Annual Annual Monthly Monthly Annual Annual Home mortgage. They are eight years into a 30-year 7.5% mortgage that had an original balance of $228,850, with a current outstanding balance of $206,602 Home equity loan. The loan balance was used to pay off credit cards and purchase a vehicle for Troy to use at college. Since the loan was first taken, they have accumulated additional credit card debt. The monthly payment is approximately 2% of the outstanding balance. The credit line expires and will be due and payable in avan years. They have paid $3,000 in interest over the past year Auto Payments Auto Balance 580 with 25 yeaning Auto Balance 525.000 with 57 months remaining Tax Issues After reviewing their paystubs John and Hale calculated that the total ansateral withholding frestimated tax payment to Theuns withholding mounted to Shurity with was 85. The Hi mariling the 20,241 ini deduction to the year The Butterfliegible income and 1 personale Haley and the children. The main to the 22 AM 120% no Resume Templ AM.png ate_So...p.docx Jobs search.xlsx Desktop Screen shots o um 97% 4-2 Tue Jul 21 4 05 AM Asim Sana a 61% - + a FIN4416 - Week 12 Butterfield - Insurance (1) A A o To www 768 Case Approach to Financial Planning . . Specific Client Goals Under any circumstance, they want to provide 50% of the cost of Holly's and Naomi's college education costs, and all of Troy's education costs that are not covered by scholarships They want to maintain their current standard of living in retirement or in the event of either spouse's premature death They want to protect their income and assets in the event of a catastrophie accidentore so that they can on their assets to their children They both want to continue funding their IRAs to the current maximum limit See TV16 for information on the Butterfields and liabilities . . Table VI 6 The Butterfield Assets and Liablities Asset mund Ownership C Client Smailap mutum und insurance cash Value Cand Co-client int Moneymar Mida mutufund AWO Amount $950 59000 51.200 $17250 100 52100 SZO 1000 $40,000 26 DOD 1000 2009 5000 00 2000 Joint int Cat |||||||||HH THI | | men RA Home cent SU SIRRO CU 1 MIN ishi Art SE CH Kiin in 12090 Butterfield - Insurance (1) oo To on The www P. Financial Planning Case Studies 769 rent Insurance Data perty and Casualty Auto. All vehicles Liability: $300,XO single limit including uninsured motorist) Medical payments.coverage $1,000 limit per person Deductible: $250 collision $100.comprehensive Premium: S1.100 every six months Auto I 20XX Honda Accord LX San Mileage Color light blue Engin ylinder Transional Pavimenti Ban with maining Worth A XXX Milea. TI MIN MINININ LINE 120 Resumerempi TO Jobs Desktop Butterfield - Insuranc Approach to Financial Planning Deductible: $500 Personal property: 50% of dwelling Bodily injury: $100,000 Personal injury: $0 Other endorsements: None Umbrella: None Professional liability: None Business: None nd Health Life. Haley has a $50,000 universal life policy with XYZ Insurance Co. She pays the annual premium of $100 The policy has a current cash value of $3.800 (the cash value at the beginning of the period was $3,600). John is the primary beneficiary and Haley is the owner. At the time of purchase, policy projections were based on after-Ex US Treasury rates of John has an employer provided term polky that pays one times his annual salary. The face amount of the policy reduced by Segardless of his salary at age and terminates at a 70 the life assumptions . for planning puno the button would like to the connector taken open the total behold feath F SSR NGE Butterfield - Insurance (1) o To . . Estate administration expenses are expected to be approximately $5,200 each. Child care expenses will be $10,000 Full retirement age, for insurance purposes, is assumed to be age 67 The Butterfields need $100,000 in annual income per year, before taxes while retired. They would like to use this assumption for both insurance and retirement planning purposes. Social Security benefit while children are still at home is $32,000 i John des and $29.000 i Haley dies, in today's dollars. At age 60. Haley is eligible for a $13.000 annual Social Security survivor benefit, while John is entitled to a $10,000 annual survivor benefit (in today's dollars) . 78/2014 6:06 AM luttps://berkeley.coureload.com Hin Financial Planning Case Studies 271 in tohtoring tentu the Butterfelden con when SH low Sininen Haley and 120 97% 2 Tue Jul 21 4 06 AM Asim Sana a 61% + a SIN4416 Week 12 Butterfield - Insurance (1) A To Health. The Butterfields health insurance is provided by Blue Crow/Blue Shield. The monthly premium of $600 is paid 66% by John's employer, with the remainder paid out of pocket. The plan has a deductible of $250 per person and a family copayment of 20%. The out-of-pocket perfamily cap on copayments is $1,000 per year. The lifetime maximum on major medical is $500,000 per person. Long-term care. None Disability. John's disability coverage is a group disability contract prowided by his employer. It pays a $5.000 monthly benefit until ange 65. The contract has a liberal Own occupation definition. The elimination period is 120 days. Haley does not have a disability policy. In the event of a disability, the Butterfells would like to continue saving for other als however, they do not want to rely on Social Security disability benefits when estimating disability income needs Vacation/medical leave. John has incumulated okay which is the maximum he is allowed to carry. He could one week per year if he fell below the maximum He also is eligible for the weeks of vacation per year. He can carry overcoe werk but this has not previously been done Education Funding Goals The Butterfields would like to assume that ducation expenses will increase year. They are comfortable assuming growth rate per year for educati and savings advantaged account before and after 67 it as held of the child is an academically (CPA) and in fextant activities Troy cumsta Univery of Anyt Current Sear waver He is ut the HE in what SINKI BAM Butterfield - Insurance (1) + o To Tup://erkeley.coursel 2014 The Crown gay Case Approach to Financial Planning . . The Butterfields have also allocated $1,200 per year to help pay for Troy's travel expenses He has completed one year of college. . His health insurance is provided under his father's group health plan. Holly wants to attend State University; current cost $10,500/year (possible tuition waliver) Wants to go to school on an ROTC scholarship and fund any additional expenses out of pocket from money amned during summers Naomi's college funding goals are unknown, but her parents want to plan for college costs of $16.500 per year in today's dollars) They prefer to use tax-advantaged savings plans to find any expenses etirement Information The Butterfields would like to retire when John tumsae 67. Based on today's dollars, they are willing to reduce their by 80% of current income while retired. At full retirement ce 67) John will ive $18.000 per year in Social Security benefits Haley will receive bene lay's dollars) atage When planning, they are comfortable assuming ortum Before time and retum after retirement Contributions to the defined contribution ano antipato increase annually. They anticipate being in a combined 25" marginal tax bracket in retirement Intat before and iter retirement their Sep pace with inflation John's employer matches 101 ibutions the doll IRA are held in Roth accounts Assumed age Hoe la should Estate Information va 120 cape Ouro POTRETTIONI Torrey camerung summers Naomi's college funding goals are unknown, but her parents want to plan for college costs of $16,500 per year (In today's dollars). They prefer to use tax-advantaged savings plans to fund any expenses. ment Information The Butterfields would like to retire when John turns age 67. Based on today's dollars, they are willing to reduce their income by 80% of current income while retired. At full retirement (ie, age 67) John will receive $18,000 per year in Social Security benefits; Haley will receive $16,500 in benefits in today's dollars) at age 67. When planning, they are comfortable assuming a 9.00% rate of return before retirement, and a 5.75% return after retirement Contributions to their defined contribution plans are anticipated to increase 3% annually. They anticipate being in a combined 25% marginal tax bracket in retirement. Inflation before and after retirement will be 3.50%; their incomes should keep pace with inflation. John's employer matches 401(k) contributions $0.50 cents on the dollar IRA assets are held in Roth accounts. Assumed age at death for John is age 90 and age 92 for Haley te Information They both have simple wills. John leaves his estate to Haley and Haley leaves her estate to John. They believe that on average their estate will grow by 4" after the first spouse's death Other assumptions include: Funeral expenses are expected to be approximately $12.000 each. Estate administrative expenses will be $5.200 each. The Butterfield do not expect to pay any executor fees 2.8.2014 Share Design Comments >> Tell me Layout agraph Styles Dictate Open Grammarly Templates ach of these questions) 1. Briefly summarize the relevant facts of the case relating to insurance planning 2. If the Butterfields were going to purchase additional life insurance what type of policy, what face value, and what riders would be most appropriate given their age and need? orr Th est 3. Explain the advantages and disadvantages of having John purchase additional life insurance through his employer. 4. Describe the 80% co-insurance rule and report to the Butterfields how this rule affects their homeowner's coverage. 5. What actions can the Butterfields take to reduce their insurance premiums while maintaining adequate coverage in terms of liability and property coverage? 6. Explain why the Butterfields should consider purchasing an excess liability insurance policy 7. Describe the purpose of long-term care insurance and indicate if and when the Butterfields should consider purchasing this type of insurance. Report on the advantages and disadvantages associated with the Butterfields' current health insurance policy. words Focus + 120% words Focus 120% Load more Case 5 The Butterfield Case URANCE PLANNING MINI-CASE John Butterfield, 49, and his wife Haley Butterfield, 44, live in a relatively new home on the outskirts of Anycity, Anystate. They have been married for 23 years and have three children. Both John and Haley are in excellent health. Their son Troy, age 20, is a baseball player on scholarship at the University of Anystate. Daughter Holly, age 17 hopes to attend State University next fall as a cadet to begin pursuing a career in the Marine Corps The choices of their first two children have allowed the Butterfields to concentrate their college saving goals on Naomi, the youngest at age 13. John and Haley have come to you for help in addressing several insurance planning questions and concerns. Use the following information to conduct a view of their financial situation and use your analyses to answer the questions that follow the case narrative. Assumptions (Valid unless otherwise Specified in Certain es) . Inflation: 3.51 All income and expense figures are given in today's dollars Federal marginal tax bracket 25 State marginal tax bracht: 75 Any qualified plan Retribution growth rates armed to stop at the mandated on this restricte AN num 265 120% BT Teminl Jobs Desktop 1446 Week 12 Butterfield - Insurance (1) A T 6 Case Approach to Financial Planning come Issues John has worked for the last 14 years as an engineer for CNS Design. He has an $$1,000 salary. He would like to retire at age 67. Haley has worked as a CPA for 17 years, the last 14 of which have been out of their home. Though her earnings vary from month to month, she estimates that she will earn $65.000 this year. She wants to retire at the same time as John. They also assume that their salaries will increase, on average, by 3.5% per year over their working lives. This year they anticipate eaming $600 in interest and non-qualified mutual fund dividend distributions, which will be reinvested. Expense Issues Table V1.5 provides a summary of the Butterfields fixed (non-discretionary) and variable discretionary) expenses. Table V1.5 Summary of Expenses Expense Pratax health care premiums 401 contributions Keogh contributions Mortgage Home equity loan Auto loan 1 Auto loan w2 Credit cards and installeret debt Autoane Homowe Day Instance taxi wa IRA conti IN Sutt Teine DNV Amount $200 $540 $7800 $1,600 $625 $310 $500 $2.100 $1.100 5825 5200 $400 5750 5750 Frequency Monthly Monthly Annually Monthly Monthly Monthly Monthly Angel Setmanual Annual Monthly A 15 570 $1.500 $5.000 $1120 120% Resume Templ STOL Jobs Desk To A To VIL Travel costs for first child while in college Groceries Food away from home $1,200 $75 $3,400 Annual Weekly Annual 7/8/20146 https://berkeley.counseload Financial Planning Case Studies 767 Real estate taxes Household maintenance Uusities Clothing Dry cleaning Personal care Furnishing Allowances Medical copayments Prescriptions $1,300 $2,700 $175 $1,500 $50 $500 $1,000 $2,000 $700 $250 $2,500 5400 ST 580 100 Anna Annual Monith Annual Month Anna Anna Annual Annual Al Anna Semia Personal property tax Banking fees blnnis ) lth M C Anna Monthly Monthly 1000 52100 A mehr 1207 STOL Resume Templ AM.png ate_So...p.docx Jobs search.xlsx Desktop Screen_shots . Jlowances Medical copayments Prescriptions Gas Personal property tax Banking fees IRA fees Travel Contributions to church Vacations Christmas gifts $2,000 $700 $250 $2,500 $400 $75 $80 $100 $125 $3,000 $2,400 Annual Annual Annual Annual Semiannual Annual Annual Monthly Monthly Annual Annual Home mortgage. They are eight years into a 30-year 7.5% mortgage that had an original balance of $228,850, with a current outstanding balance of $206,602 Home equity loan. The loan balance was used to pay off credit cards and purchase a vehicle for Troy to use at college. Since the loan was first taken, they have accumulated additional credit card debt. The monthly payment is approximately 2% of the outstanding balance. The credit line expires and will be due and payable in avan years. They have paid $3,000 in interest over the past year Auto Payments Auto Balance 580 with 25 yeaning Auto Balance 525.000 with 57 months remaining Tax Issues After reviewing their paystubs John and Hale calculated that the total ansateral withholding frestimated tax payment to Theuns withholding mounted to Shurity with was 85. The Hi mariling the 20,241 ini deduction to the year The Butterfliegible income and 1 personale Haley and the children. The main to the 22 AM 120% no Resume Templ AM.png ate_So...p.docx Jobs search.xlsx Desktop Screen shots o um 97% 4-2 Tue Jul 21 4 05 AM Asim Sana a 61% - + a FIN4416 - Week 12 Butterfield - Insurance (1) A A o To www 768 Case Approach to Financial Planning . . Specific Client Goals Under any circumstance, they want to provide 50% of the cost of Holly's and Naomi's college education costs, and all of Troy's education costs that are not covered by scholarships They want to maintain their current standard of living in retirement or in the event of either spouse's premature death They want to protect their income and assets in the event of a catastrophie accidentore so that they can on their assets to their children They both want to continue funding their IRAs to the current maximum limit See TV16 for information on the Butterfields and liabilities . . Table VI 6 The Butterfield Assets and Liablities Asset mund Ownership C Client Smailap mutum und insurance cash Value Cand Co-client int Moneymar Mida mutufund AWO Amount $950 59000 51.200 $17250 100 52100 SZO 1000 $40,000 26 DOD 1000 2009 5000 00 2000 Joint int Cat |||||||||HH THI | | men RA Home cent SU SIRRO CU 1 MIN ishi Art SE CH Kiin in 12090 Butterfield - Insurance (1) oo To on The www P. Financial Planning Case Studies 769 rent Insurance Data perty and Casualty Auto. All vehicles Liability: $300,XO single limit including uninsured motorist) Medical payments.coverage $1,000 limit per person Deductible: $250 collision $100.comprehensive Premium: S1.100 every six months Auto I 20XX Honda Accord LX San Mileage Color light blue Engin ylinder Transional Pavimenti Ban with maining Worth A XXX Milea. TI MIN MINININ LINE 120 Resumerempi TO Jobs Desktop Butterfield - Insuranc Approach to Financial Planning Deductible: $500 Personal property: 50% of dwelling Bodily injury: $100,000 Personal injury: $0 Other endorsements: None Umbrella: None Professional liability: None Business: None nd Health Life. Haley has a $50,000 universal life policy with XYZ Insurance Co. She pays the annual premium of $100 The policy has a current cash value of $3.800 (the cash value at the beginning of the period was $3,600). John is the primary beneficiary and Haley is the owner. At the time of purchase, policy projections were based on after-Ex US Treasury rates of John has an employer provided term polky that pays one times his annual salary. The face amount of the policy reduced by Segardless of his salary at age and terminates at a 70 the life assumptions . for planning puno the button would like to the connector taken open the total behold feath F SSR NGE Butterfield - Insurance (1) o To . . Estate administration expenses are expected to be approximately $5,200 each. Child care expenses will be $10,000 Full retirement age, for insurance purposes, is assumed to be age 67 The Butterfields need $100,000 in annual income per year, before taxes while retired. They would like to use this assumption for both insurance and retirement planning purposes. Social Security benefit while children are still at home is $32,000 i John des and $29.000 i Haley dies, in today's dollars. At age 60. Haley is eligible for a $13.000 annual Social Security survivor benefit, while John is entitled to a $10,000 annual survivor benefit (in today's dollars) . 78/2014 6:06 AM luttps://berkeley.coureload.com Hin Financial Planning Case Studies 271 in tohtoring tentu the Butterfelden con when SH low Sininen Haley and 120 97% 2 Tue Jul 21 4 06 AM Asim Sana a 61% + a SIN4416 Week 12 Butterfield - Insurance (1) A To Health. The Butterfields health insurance is provided by Blue Crow/Blue Shield. The monthly premium of $600 is paid 66% by John's employer, with the remainder paid out of pocket. The plan has a deductible of $250 per person and a family copayment of 20%. The out-of-pocket perfamily cap on copayments is $1,000 per year. The lifetime maximum on major medical is $500,000 per person. Long-term care. None Disability. John's disability coverage is a group disability contract prowided by his employer. It pays a $5.000 monthly benefit until ange 65. The contract has a liberal Own occupation definition. The elimination period is 120 days. Haley does not have a disability policy. In the event of a disability, the Butterfells would like to continue saving for other als however, they do not want to rely on Social Security disability benefits when estimating disability income needs Vacation/medical leave. John has incumulated okay which is the maximum he is allowed to carry. He could one week per year if he fell below the maximum He also is eligible for the weeks of vacation per year. He can carry overcoe werk but this has not previously been done Education Funding Goals The Butterfields would like to assume that ducation expenses will increase year. They are comfortable assuming growth rate per year for educati and savings advantaged account before and after 67 it as held of the child is an academically (CPA) and in fextant activities Troy cumsta Univery of Anyt Current Sear waver He is ut the HE in what SINKI BAM Butterfield - Insurance (1) + o To Tup://erkeley.coursel 2014 The Crown gay Case Approach to Financial Planning . . The Butterfields have also allocated $1,200 per year to help pay for Troy's travel expenses He has completed one year of college. . His health insurance is provided under his father's group health plan. Holly wants to attend State University; current cost $10,500/year (possible tuition waliver) Wants to go to school on an ROTC scholarship and fund any additional expenses out of pocket from money amned during summers Naomi's college funding goals are unknown, but her parents want to plan for college costs of $16.500 per year in today's dollars) They prefer to use tax-advantaged savings plans to find any expenses etirement Information The Butterfields would like to retire when John tumsae 67. Based on today's dollars, they are willing to reduce their by 80% of current income while retired. At full retirement ce 67) John will ive $18.000 per year in Social Security benefits Haley will receive bene lay's dollars) atage When planning, they are comfortable assuming ortum Before time and retum after retirement Contributions to the defined contribution ano antipato increase annually. They anticipate being in a combined 25" marginal tax bracket in retirement Intat before and iter retirement their Sep pace with inflation John's employer matches 101 ibutions the doll IRA are held in Roth accounts Assumed age Hoe la should Estate Information va 120 cape Ouro POTRETTIONI Torrey camerung summers Naomi's college funding goals are unknown, but her parents want to plan for college costs of $16,500 per year (In today's dollars). They prefer to use tax-advantaged savings plans to fund any expenses. ment Information The Butterfields would like to retire when John turns age 67. Based on today's dollars, they are willing to reduce their income by 80% of current income while retired. At full retirement (ie, age 67) John will receive $18,000 per year in Social Security benefits; Haley will receive $16,500 in benefits in today's dollars) at age 67. When planning, they are comfortable assuming a 9.00% rate of return before retirement, and a 5.75% return after retirement Contributions to their defined contribution plans are anticipated to increase 3% annually. They anticipate being in a combined 25% marginal tax bracket in retirement. Inflation before and after retirement will be 3.50%; their incomes should keep pace with inflation. John's employer matches 401(k) contributions $0.50 cents on the dollar IRA assets are held in Roth accounts. Assumed age at death for John is age 90 and age 92 for Haley te Information They both have simple wills. John leaves his estate to Haley and Haley leaves her estate to John. They believe that on average their estate will grow by 4" after the first spouse's death Other assumptions include: Funeral expenses are expected to be approximately $12.000 each. Estate administrative expenses will be $5.200 each. The Butterfield do not expect to pay any executor fees 2.8.2014 Share Design Comments >> Tell me Layout agraph Styles Dictate Open Grammarly Templates ach of these questions) 1. Briefly summarize the relevant facts of the case relating to insurance planning 2. If the Butterfields were going to purchase additional life insurance what type of policy, what face value, and what riders would be most appropriate given their age and need? orr Th est 3. Explain the advantages and disadvantages of having John purchase additional life insurance through his employer. 4. Describe the 80% co-insurance rule and report to the Butterfields how this rule affects their homeowner's coverage. 5. What actions can the Butterfields take to reduce their insurance premiums while maintaining adequate coverage in terms of liability and property coverage? 6. Explain why the Butterfields should consider purchasing an excess liability insurance policy 7. Describe the purpose of long-term care insurance and indicate if and when the Butterfields should consider purchasing this type of insurance. Report on the advantages and disadvantages associated with the Butterfields' current health insurance policy. words Focus + 120% words Focus 120% Load more