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 > 3.0) 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: 20XX Honda Accord LX Sedan Mileage: 30,000 Color: light blue Engine: six-cylinder Transmission: manual Payment: $310/month Balance: $8,500 with 2.5 years remaining Worth: $17,500

Auto 2: 20XX Toyota Sequoia Limited (44) 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 Johns 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. Johns 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. Which of the following is an advantage associated with the Butterfields current health insurance coverage?

a. Johns employer pays two-thirds of the total premium, which makes the cost of the group health policy reasonably low. b. The annual per person deductible and family co-payment associated with the policy is very reasonable, as compared to the maximum allowable family out-of-pocket limits set by the ACA of 2010 for a Health Insurance Marketplace plan. c. Once Troy and Naomi graduate from college and obtain health insurance coverage through an employer, John and Haley should drop Johns employer-provided health insurance coverage and purchase a plan through an Affordable Care Act of 2010 exchange because the costs will be lower and benefits higher. d. All of the above are true. e. Only a and b are correct.