Scenario:

Bob and Judy are your new clients. Their lives have been changing with a buying a new home $5$ years ago along with starting their family. Bob has a stable career while Judy has decided to build her own business at home while caring for their children. Bob and Judy are both $40$ years old, and own their own home with a market value of $$350,000,$ replacement cost of $$400,000$ and a $$250,000$ mortgage to be repaid over the next $25$ years. Their monthly payment including taxes and insurance is $$1,400.$ Bob$$s gross income $$80,000$ a year as a systems analyst, and Judy is a bookkeeper grossing $$50,000$ from her own S Corporation based in their home. She has about $$5,000$ in business expenses a year. They have two children aged $3$ and $5,$ for whom they have been contributing $$300$ per month since their birth to $529$ plans to fund their future education. They are also just began investing $$1,500$ per month into Bob$$s $401$k to save for their retirement. They hope the $529$ and retirement funding are adequate to meet their desires. In addition to their mortgage, they have other debt of $$40,000,$ with monthly payments of $$800.$ After paying all of these bills, they do not have any money left over.

They do have an emergency fund of $$10,000.$

Current insurance in place:

Auto Insurance:

$$ Liability limits of $25/50/100$

$$ Comprehensive and collision deductibles of $$50$

Homeowners Insurance:

$$ Coverage A limit of $$250,000$ to cover the mortgage

$$ Personal liability limit of $$50,000$

$$ Deductible of $$100$

Life insurance:

$$ Bob $$

o $$80,000(1$X salary$)$ from his employer, not portable

o $$200,000$ term policy expiring in $9$ years

$$ Judy $$

o None

Disability Insurance:

$$ Bob $60\%$ income replacement, any occupation, employer paid

$$ Judy $$ None

Health Insurance:

$$ Bob, Judy and their children are covered by Bob$$s employer plan, annual out$-$of$-$pocket maximum is $$3,000$

Assume these are the only insurances they have in place. Also assume a $20\%$ reduction in monthly expenses should either Bob or Judy die.

Instructions

$1)$ Analyze their current insurances for adequacy. What recommendations would you make to these current policies and why?

$2)$ What additional insurances would you recommend and why?

$3)$ What future steps would you recommend they take with their insurance and why?