Michael and Marla Goldberg

Life Insurance

Based on the facts presented in this case, what is the impact of premature death on this family? What are the familys life insurance needs? What amount and what type of policies, if any, should they be purchasing?

Michael, age forty-three and Marla, age forty-one, are a married couple with two children, Barbara, age eight, and Bradley, age eleven. Michael earns $120,000 annually as a marketing and sales manager for a local firm. Marla earns $32,000 annually as an administrative assistant with the local school district. She works only during the school term so she can be home with the children when they are free from school on their summer break.

Michael and Marla purchased their home ten years ago in a lovely residential neighborhood. It is currently valued at $409,000, with an outstanding mortgage of $142,500. They have one family car, valued at $27,500, which has an outstanding loan amount of $2,600. Michaels employer supplies him with a company car for which all expenses are paid.

Michael is contributing to a retirement plan (called a 401(k)) sponsored by his employer, who matches his contributions up to 5 percent. The current value of his tax-deferred contributions, employer contributions, and investment earnings is $232,000. Michael also has a group universal life (GUL) policy through his employer in an amount equal to his salary ($120,000) and has purchased additional coverage up to two times his salary for a total of $240,000.

Marla has a retirement plan with the school district that pays a specified benefit. Based on a retirement age of sixty-five, she would receive $392 monthly. If Marla predeceases Michael, he would be entitled to 50 percent of her monthly benefits starting at age sixty-five. The school district provides $15,000 in group insurance coverage to Marla, and she has no other life insurance coverage. Michael and Marla are also both eligible to receive Social Security benefits in retirement.

The needs approach or the human life value approach can be used to determine whether Michael and Marla have sufficient life insurance in the event of their premature death. As their agent it is up to you to decide which approach to use for Michael and Marla. To accomplish this, you must evaluate the familys current financial situation, economic needs, and available resources, such as existing life insurance and retirement plans. If additional coverage is needed, types and sources of life insurance should be discussed.

Needs Analysis Steps

Calculating Michael and Marlas life-insurance needs entails several steps of analysis to determine cash needs in the event of Michaels premature death as well as the assets the couple has available to meet those needs.

Expense Needs

Although both Michael and Marla are employed, the first step in determining life insurance needs would focus on Michael as the primary wage earner in the family. This process entails review of the familys cash needs, such as ongoing living expenses, outstanding debt, and funding for the childrens education, as well as final expenses that would arise in the event of Michaels premature death. The same process would then be used to determine the familys cash needs in the event of Marlas premature death.

The goal of this review is to determine how much money will be required to maintain the familys current standard of living should Michael die prematurely. In this case, it is assumed that Marla would continue to work in her current job with the same retirement benefits and that she would also receive Social Security benefits at retirement age. If Marla planned to change jobs in the event of Michaels premature death, the expense need projections would be adjusted. Marlas current employment allows the family to avoid child-care expenses because her hours match those of the childrens school hours and she is home during summer vacation. If she were to change to a job that had longer hours and required her to work during the summer, the needs calculation would have to reflect additional child care expenses.

Final Expenses Needs

Funeral costs $ 9,500

Estate settlement 7,500

Federal taxes 0

State taxes 0

Total Final Expenses $17,000

Debt Elimination Needs

Satisfy outstanding mortgage(s) $142,500

Fund childrens education 175,000

Eliminate outstanding credit card debt 3,750

Eliminate outstanding car loan 2,600

Total Debt Elimination Needs $323,850

Familys Living Expenses Needs

Household maintenance expenses $150,000

Other living expenses $200,000

Child care expenses $ 0

Total Family Living Expenses Needs $350,000

Special Needs

The next step would involve considering whether the family has any expenses related to special needs in addition to maintaining its current standard of living. Such expenses could include gifts to charitable institutions or establishment of a trust. Michael and Marlas only special need is establishing an emergency fund that would cover any unanticipated expenses following Michaels premature death. This amount is determined to be $25,000.

Retirement Income Needs

After the familys living expense needs are calculated, it is necessary to consider how much income Marla would need in retirement. This calculation is based on her age at Michaels death and other sources of retirement income, including her defined benefit pension plan and Social Security benefits. Much of Michael and Marlas current funding for retirement is based on Michaels 401(k) proceeds. In the event of his premature death, Marla would need to supplement her retirement income to cover all of her living expenses. This amount is determined to be $350,000.

Total Needs

The final step of the needs approach is adding all of the calculated expense needs to determine the total dollar amount required to meet monthly, ongoing, special, and retirement income needs. This amount will form the basis for determining whether Michael is carrying a sufficient amount of life insurance or whether additional life insurance should be purchased.

Total Needs

Final expense needs $ 17,000

Debt elimination needs $ 323,850

Family living expenses needs $ 350,000

Special needs $ 25,000

Retirement income needs $ 350,000

Total Needs $1,065,850

Assets Available

After all of Michael and Marlas needs have been reviewed and calculated, the next step is to determine the dollar amount of assets that are available to meet these needs. These available assets include Michaels group life coverage, his retirement account, and benefits that would be paid by Social Security. Marla would not receive survivors benefits under Michaels Social Security until she reaches retirement age (age 60). Social Security will, however, pay monthly survivors benefits to the children until they turn eighteen (in most cases).

Available Assets

Group life insurance $ 240,000

Checking and savings accounts $ 11,000

Social Security survivors benefits $ 335,000

Retirement account $ 232,000

Total Assets $ 818,000

Total Life Insurance Needs

After all of the familys expense needs have been identified and compared to the available assets, the insurance professional should be ready to advise Michael and Marla regarding the adequacy of their current life insurance program. This review would also include an evaluation of the familys needs in the event of Marlas premature death.

Property, Casualty, and Liability

To repeat:

Michael and Marla purchased their home ten years ago. It is currently valued at $309,000, with an outstanding mortgage of $142,500. They have one family car, valued at $27,500, which has an outstanding loan amount of $2,600. Michaels employer supplies him with a company car for which all expenses are paid.

What coverage do Michael and Marla have?

• Primary home is only insured for 60% of the total replacement cost.
  • That means, if it is destroyed somehow, the client will only be paid $185.400, rather than the full amount of what the home costs to rebuild.
• They do not have umbrella liability coverage based on assets and net worth.
• Different insurance company for each policy nothing is consolidated, and they have different effective dates (unorganized).

Questions that need to be addressed:

• Are there discounts that might be available?
• Is their liability insurance adequate?
• Make a recommendation for appropriate auto coverage.
• Are there other coverages they should be considering? If so, why? If not, why not?

More than 4,000 ransomware attacks have occurred every day in the United States since 2016, according to the FBI. Thats a 300% increase since 2015, which averaged 1,000 ransomware attacks per day. Is this something Michael and Marla should consider?

Finally, do they need, or should they have Flood Insurance, or should they have Earthquake Insurance?

Build Michael and Marla a comprehensive property, casualty, and liability plan.

Health and Disability Coverage

The open enrollment period is currently on for both Michael and Marla, and they are considering their possible options.

Currently Michael has his own insurance and Marla is providing coverage for herself and the children.

They have a great many questions regarding whether they should all be on one plan or whether the kids only should move over to Michaels plan. Both of them are currently on the HMO plans offered through their respective employers. But they have heard that the PPO plan is much better, but also more expensive.

Can you please guide them in their process and explain the difference between the two types of plans and what the advantages and disadvantages are of each one.

Michael has also asked about indemnity plans and what the differences are between those plans and the ones offered through his work.

Finally, only Michael has disability income insurance through his employer, and it is an any-occupation plan, though there is an own-occupation plan available through his employer also. Can you explain the difference between them?

Should Marla have disability income insurance? And if she desires coverage, there is no benefit available through her employer, but her professional organization does offer a disability income insurance plan for member, which she is one. What is your recommendation here?

Please make certain that your clients are adequately covered in every aspect of their plan