The Butterfield Case

AN INSURANCE PLANNING MINI$-$CASE

John Butterfield, forty$-$nine, and his wife Haley Butterfield, forty$-$four, live in a relatively new home on the outskirts of Anycity, Anystate. They have been married for twenty$-$three years and have three children. Both John and Haley are in excellent health. Their son Troy, age twenty, is a baseball player on scholarship at the University of Anystate. Daughter Holly, age seventeen, hopes to attend State University next fall as a cadet to begin pursuing a career in the Marine Corps. Each of the children is talented academically $($GPA $>3\mathrm{.}0)$ and in terms of extracurricular activities.

The choices of their first two children have allowed the Butterfields to concentrate their college saving goals on Naomi, the youngest, at age thirteen. John and Haley have come to you for help in addressing several insurance planning questions and concerns. Use the following information to conduct a review of their financial situation and use your analyses to answer the questions that follow the case narrative.

Income

John has worked for the last fourteen years as an engineer for CNS Design. He has an $$81,000$ salary.

Haley has worked as a CPA for seventeen years, the last fourteen of which have been out of their home. She also does consulting work from home. Though her earnings vary from month to month, she estimates that she will earn $$65,000$ this year.

Current Insurance Data

Property and Casualty

Auto: All vehicles

Liability: $$300,000$ single limit $($including uninsured motorist$)$

Medical payments coverage: $$1,000$ limit per person

Deductible: $$250$ collision; $$100$ comprehensive

Premium: $$1,100$ every six months

Auto $1$: $20$XX Honda Accord LX Sedan

Mileage: $30,000$

Color: light blue Engine: six$-$cylinder

Transmission: manual

Payment: $$310/$month

Balance: $$8,500$ with $2\mathrm{.}5$ years remaining Worth: $$17,500$

Auto $2$: $20$XX Toyota Sequoia Limited $(4\backslash$times $4)$

Mileage: $5,500$

Color: silver

Engine: eight$-$cylinder

Transmission: automatic

Payment: $$500/$month

Balance: $$25,000$ with fifty$-$seven months remaining

Worth: $$38,000$

Home. Single$-$family dwelling

Insured value: $$245,000$

Replacement value: $$315,000$

Deductible: $$500$

Personal property: $50$ percent of dwelling

Bodily injury: $$100,000$

Personal injury: $$0$

Other endorsements: None

Umbrella: None

Professional liability: None

Business: None

Life and Health

Life. Haley has a $$50,000$ universal life policy with XYZ Insurance Co$.$ She pays the annual premium of $$400.$ The policy has a current cash value of $$3,800($the cash value at the beginning of the period was $$3,600).$ John is the primary beneficiary and Haley is the owner. At the time of purchase, policy projections were based on after$-$tax U$.$S$.$ Treasury rates of $6$ percent.

John has an employer$-$provided term policy that pays one times his annual salary. The face amount of the policy is reduced by $50$ percent, regardless of his salary, at age sixty$-$ five and terminates at age seventy.

Health. The Butterfields$$ health insurance is provided by Blue Cross$/$Blue Shield. Coverage currently includes everyone in the family. The monthly premium of $$600$ is paid $66$ percent by John$$s employer, with the remainder paid out of pocket. The plan has a deductible of $$250$ per person and a family copayment of $20$ percent. The out$-$of$-$ pocket per$-$family cap on copayments is $$1,000$ per year.

Long$-$term care. None.

Disability. John$$s disability coverage is a group disability contract provided by his employer. It pays a $$5,000$ monthly benefit until age sixty$-$ five. The contract has a liberal $$own occupation$$ definition. The elimination period is $120$ days. Haley does not have a disability policy. In the event of a disability, the Butterfields would like to continue saving for other goals; however, they do not want to rely on Social Security disability benefits when estimating disability income needs.

Vacation$/$medical leave. John has accumulated thirty sick days, which is the maximum he is allowed to carry. He could accrue one week per year if he fell below the maximum. He also is eligible for three weeks of vacation per year. He can carry over one week, but this has not previously been done.

Question

$1.$ The Butterfields recently lived through a major wind storm. The experts said it was not a tornado, but John and Haley would argue otherwise. Their home was terribly damaged. It has been estimated that it will cost $$250,000$ to fix the house. Excluding listed deductibles and copayments, how much must the Butterfields pay out of pocket toward the repairs?

a$.$ $$0$

b$.$ $$500$

c$.$ $$5,000$

d$.$ $$7,500$

During a recent thunderstorm, the Butterfields$$ Honda Accord received $$2,300$ in damage from hail. How much will their PAP pay for this claim?

a$.$ $$0$

b$.$ $$2,050$

c$.$ $$2,200$

d$.$ $$2,300$