Problem 1

Julian, age 27, has two children, ages 4 and 3, from his first marriage. He is now married to Margaret. The children live with their mother, Alice. Julian and Margaret each make $26,000 per year and have recently bought a house for $100,000, with a $95,000 mortgage. They have the following life, health, and disability insurance coverage: Life Insurance

Policy A		Policy B		Policy C
Insured	Julian		Julian		Margaret
Face amount	$250,000		$78,000		$20,000
Type	20-year level term		Group term		Group term
Annual premium	$250		$156		$50
Premium payor	Trustee		Employer		Employer
Beneficiary	Trustee*		Alice		Julian
Policyowner	Trust		Julian		Margaret
*Children are beneficiaries of the trust required by divorce decree.

Health Insurance Julian and Margaret are covered under Julians employer plan, which is a PPO plan with a $500 in-network deductible per person per year and a $1,500 out-of-network deductible per person per year, an in-network 80/20 coinsurance clause with a family annual out-of-pocket maximum of $2,500, and an out-of-network 60/40 coinsurance clause with a family out-of-pocket maximum of $4,500.

Long-Term Disability Insurance Julian is covered by an own occupation policy, with premiums paid by his employer. The benefit equals 60% of his gross pay after a 180-day elimination period. The policy covers both sickness and accidents. The benefit period is five years (60 months). Margaret is not covered by disability insurance.

a. Assume that Julian dies. Who would receive the proceeds of the insurance policies?

b. Does Julian have adequate life insurance?

c. Is Julians health and disability coverage adequate? If not, why not?

d. Should Margaret have disability insurance? Why or why not?

e. Are any of the premiums or benefits received from the life, health, or disability insurance taxable to Julian and Margaret?