RISK MANAGEMENT Prepare to discuss with Jake his need for various forms of insurance. For each of the following forms of insurance, discuss... a) The risk(s) the insurance helps mitigate. b) Does he need the insurance? 1. Renter's insurance. 2. Life insurance 3. Comprehensive automobile coverage 4. Analyze the two health insurance policies offered by his employer (shown below). What are the relative advantages of each policy? Discuss how these policies can be used to decrease uncertainty and risk for Jake. First Care Blue Cross Premium - One Person $125 $280 Premium - Two Person $300 $495 Premium - Family $450 $750 Calendar year deductible $1,000 $0 Out-of-pocket coinsurance maximum $15,000 $12,000 Co-Insurance rate 20% 10% 5. Discuss for Jake if there are any other forms of insurance he should consider purchasing, and why those insurance policies might be important. 6. Factor in the monthly costs of the insurance Jake needs into his budget. Give Jake a final, updated financial plan that includes all the expenses and goals discussed in each of the previous case assignments.INSURANCE INFORMATION AUTO INSURANCE Jake's parents covered the cost of his auto-insurance while he was in college. Now that he has graduated, he is responsible for paying the $65 per month policy premium. However, if he decides to purchase a new truck, he will have to get higher coverage that will cost $135 per month. RENTER'S INSURANCE Jake does not currently have renter's insurance. If it is decided that this is something he needs, it will cost him $15 per month. LIFE INSURANCE Jake currently has no life insurance. If he buys some, he will have to pay $10 per month for every $100,000 of coverage he purchases. DISABILITY INSURANCE Jake's new employer provides short-term disability insurance as a benefit of employment. MEDICAL INSURANCE Jake was previously covered by his parent's health insurance policy. Not that he has graduated, he is no longer considered their dependent and can no longer be covered under their policy. His employer has provided the following insurance policy options First Care Blue Cross Premium - One Person $125 $280 Premium - Two Person $300 $495 Premium - Family $450 $750 Calendar year deductible $1,000 $0 Out-of-pocket coinsurance maximum $15,000 $12,000 Co-Insurance rate 80% 90% ESTATE PLANNING INFORMATION Jake currently has no estate planning documents in place.TOEWS CASE STUDY Jake Toews is a young single professional living in Charlotte, North Carolina. At age 24, he has just accepted a job as a junior electrical engineer at a local utilities company. Jake fell in love with the Carolinas while attending Western Carolina and plans to remain in or near Charlotte until retirement. Jake has also been dating Amanda for the past three years, and they are beginning to talk about marriage, but want to wait a couple more years until Amanda is out of school. Jake's parents, now in their mid-sixties, want to retire but are financially unable to. At his parent's urging, Jake has decided to prepare a financial plan to prevent himself from facing the same financial difficulties. Jake and Amanda have not really discussed their finances, but Jake is sometimes irritated by the way Amanda "pinches pennies." Amanda will not buy anything unless it is marked down, and she always shops for the best prices. Jake likes to spend money and is currently thinking about upgrading his vehicle to a new Toyota Tacoma. He also gets pleasure from buying gifts for those he loves. Jake was a triathlete in college, and would like to continue to compete. In order to remain competitive, he must continue to train at a high level and travel to compete it at least three triathlons each year. Jake was responsible for paying for his own education, and despite having a small scholarship, has significant student loan debt. He must start repaying these loans now that he has graduated, and he is surprised by the size of his payments. In addition to his student loan debt, he also has some credit card debt that he would like to pay off. Jake has several goals. He would like to reduce his debt and establish an adequate emergency fund to be better financially prepared. Jake's current rent is $900 per month for his two bedroom apartment. He feels like this is expensive, and is considering buying a house instead. Jake does not currently save for retirement, and he does not know much about investments. With his new job, he will have the opportunity to participate in a 401 (k) retirement plan. He is uncertain, given his other goals, about how much he should currently be saving into the plan. He also needs to select health insurance benefits from the package offered by his new employer. Motivated by the desire to be financially successful, Jake has decided to consult you to help him develop a financial plan. He has filled out the data gathering forms you provided to him, and returned them for your use. These forms are presented on the following pages. Read the information Jake has provided so that you can "get acquainted" with his financial situation.ASSETS As of June 1, 2016 CASH & CASH EQUIVALENTS LOCATION BALANCE |RATE OF INTEREST MATURITY CHECKING Wells Fargo Bank $224 1.0% N/A SAVINGS Wells Fargo Bank $673 1.3% N/A AUTOMOBILE(S) Year Make Model Cost Current Value Outstanding Loan Balance 2003 Toyota Corolla $9,000 $5,200 $0 REAL & PERSONAL PROPERTY Market Value Replacement Value Furniture and Media Equipment $ 3,000 $ 6,000 Clothing and Jewelry $ 750 $ 1,000 Computers, printer, etc. $ 350 $ 1,250 Exercise Equipment $ 8,500 $13,100 Miscellaneous household items 500 $8,000INCOME AND EXPENSES Expected for June 1, 2016 - June 1, 2017 INCOME Gross Monthly Income Gross Annual Income Jake's Salary $4,583 $55,000 Cash gifts 300 Interest 10 Total Income $4,583 $55,310 EXPENSES Cash Flow Cash Flow Monthly Annually Fixed Expenses Rent $900 $10,800 Utilities 120 1,440 Federal Income Tax withholding 578 6,936 Social Security Tax (FICA) withholding 351 4,212 Cell Phone 40 480 Cable TV and Internet 120 1,440 Groceries 160 1,920 Auto maintenance (gas, repairs, etc.) 250 3,000 Auto Insurance 65 780 Health Insurance Premiums Credit Card Fees 16 200 Visa Minimum Paymen 144 1,728 Sport's Authority Minimum Payment 0 American Express Minimum Payment 36 432 Education loan payments 147 5,364 Total Fixed Expenses 3,227 38,732 Variable Expenses Medical/dental expenses 25 300 Food away from home 200 2,400 Clothing 60 720 Personal Care 60 720 Appliances, Furniture, and Equipment Entertainment 80 960 Travel for Triathlons 167 2,004 Gym Membership (with CC discount) 45 540 Fitness Trainer 120 1,440 Total Variable Expenses 757 9.084 Total $3,984 $47,816LIABILITIES As of June 1, 2016 STUDENT LOANS Original Interest Current Payment Total # of Date of First Balance Rate Balance Amount Payments Payment Student Loan # 1 $12,000 5.96% $12,793 $142 120 11/1/2016 Student Loan #2 $8,500 5.55%% $8,500 $97 120 11/1/2016 Student Loan #3 $15,000 6.55% $15,000 $171 120 11/1/2016 Student Loan #4 $2.500 5.96% 3,307 :37 120 11/1/2016 CREDIT CARDS Annual Interest Credit Outstanding Minimum Grace Fee Rate Limit Balance Payment Period Visa $0 18% $5,000 $4,800 3% of balance or $25 30 days Sport's Authority* $150 28% $1,000 SO 3% of balance or $25 30 days American Express $50 23% $15,000 $1,200 3% of balance or $25 30 days *The Sport's Authority card gives a 2% discount on all sports equipment purchases, and $5 off each month on his gym membershipFINANCIAL GOALS Establish a cash management plan Incorporate a comparison of debt payoff vs savings decisions Debt payoff includes: student loans and credit cards Savings includes: emergency (min. $5,000 preferred), honeymoon, gifts, and retirement Obtain adequate insurance Consider life, medical, disability, and property coverage Make a decision about major life purchases When and how to buy a house and new truck Make sure necessary estate planning documents are in place Consider medical directives, powers of attorney, and a will What is your single most important financial objective at this time? To make sure I am saving in a way that will allow me to meet my short and intermediate term goals FINANCIAL PRIORITIES Jake a. LIVING: paying monthly bills b. PLEASURE: spending money c. SAVING: invest in future d. DISABILITY: protect against . DEATH: care for family f. REDUCE TAXES: spend to save INVESTING: accumulating assets h. CHILDREN: starting a family Prioritized with 1 being most important and 8 being least important OTHER INFORMATION I. Are you able to save regularly? I do not currently save, but believe I will be able to save from my earnings at my new job. 2. How much do you save annually? N/A 3. Do you invest regularly? I currently have no investment experience, but am interested in investing for retirement. 4. Do you feel you are financially organized? Not really. 5. Do you budget your money? No, and I have been forced to use my credit cards as a result of overspending. 6. If you were to die, could your spouse handle the finances? N/A, but I believe Amanda could handle the finances if we do get married. 7. How do you feel about saving for retirement? It is important. 8. If you had an extra $5,000 what would you do with it? Save it for a down payment on a house. 9. How do you feel about taking investment risks? Moderate risk-taker 10. How is your health? Very good