Dillon (age 55) and Mackenzie (age 60) Carter are married and live in Chicago, Illinois. They have a daughter, Abby Carter (age 18). Mackenzie is a part-time surgeon and Dillon is an instructor at the University of Chicago. Abby attends college in Chicago. Dillon and Mackenzie have a pool in their backyard and just bought a German Sherpard. Dillon and Mackenzie have $5,000 in cash in a safe at home in the event an emergency arises.

Mackenzie and Dillon purchased their primary residence five years ago for $260,000 near a beautiful river. Their down payment was $20,000 and the remainder was a mortgage. The lender did not require flood insurance when the Carters purchased the home. The monthly interest rate on the mortgage is 4.375%. The replacement value of the home is $270,000. The Carter’s took out a 5-year auto loan for $25,000 one year ago. The APR on the loan is 6%.

The Carter’s have a HO-5 policy. Their home is covered for $200,000 (Coverage A). Their HO-5 policy provides $300,000 of liability protection (coverage E). Both of the Carter’s cars are covered using the minimum liability limits required by state law. They have collision and comprehensive coverage on both cars and a $250 deductible. Dillon has group term life insurance through his employer equal to one year’s salary. Dillon also has a disability policy through the University of Chicago that replaces 60% of his gross salary. Mackenzie and Abby are covered under Dillon’s high deductible health insurance plan through the University of Chicago. Mackenzie and Dillon plan to retire in approximately 10 years.

Dillon and Mackenzie also have a house near the Wisconsin Dells they rent out on AirBNB and VRBO. The home has a replacement cost of $600,000. The home is insured under a HO-5 policy for $500,000 (coverage A). The HO-5 provides $300,000 of liability protection (coverage E). The home generates approximately $30,000/year in rental income. Mackenzie and Dillon do not have a mortgage on the home.

Mackenzie and Dillon have asked you, their financial planner, to put together the risk management section of their financial plan. You may work with a partner or alone. The financial plan should include the following:

One-page executive summary that outlines the recommendations

The different areas of risk exposure

Your recommendations and justifications