Financial Services _Çô Client Services RFC121 Chapter Notes - Chapter 8: Vicarious Liability, Liability Insurance

Joe and Lisa White are a married couple. Joe is 63 and Lisa is 61. Joe is thinking about retiring in a few years, and the Whites have come to you for an insurance evaluation. Lisa plans to continue working even after Joe retires. The following provides a summary of the Whites’ insurance planning situation.

Life Insurance

Joe owns a $500,000 universal life insurance policy. Joe is the insured and their son David, age 37, is the beneficiary. The policy has a cash value of $50,000 and a living benefits provision; all account earnings are used to offset premium expenses. Lisa owns a 20 year $350,000 level term life policy that she purchased five years ago. She pays approximately $1,000 per year in premium costs. Lisa is the insured and Joe is the beneficiary.

Property and casualty insurance

Joe and Lisa own a home as JTWROS. The home has a market and replacement value of $675,000. The house is insured with the standard HO-3 policy for $550,000. The policy requires that the Whites pay a $500 deductible per claim occurrence. Other provisions include the following:

10% coverage on detached structures

Coverage up to $250 for cash

Coverage up to $1,500 for collectibles, artwork, and similar assets

Personal property contents coverage equal to 20% of the insured dwelling

Living expenses coverage for six months

Coverage up to $100,000 for personal liability

A replacement cost coverage endorsement is in place

The Whites’ two cars are insured under a personal automobile policy with split limit coverage of 250,000/500,000/50,000. They also have a $1 million excess liability policy.

Health insurance

The Whites are covered under Lisa’s group health insurance plan. The traditional plan has a lifetime maximum benefit equal to $5 million for the family, a $500 per person deductible, and an 80% coinsurance clause, with the family stop-loss limit of $2,500.

Using this information, please answer the following questions.

5. If the Whites sustain an $90,000 loss to their dwelling from a fire, how much will the insurance company pay (after the deductible) toward the dwelling loss claim? Justify your answer. Show all computations.

5A. $550,000

5B. $55,000

5C. $89,500

5D. $90,000

6. Lisa believes that her husband is a reckless driver. She worries about what would happen if he were ever in a serious car accident. If Joe is involved in a car accident and causes physical harm to another motorist in the amount of $300,000, how much will be paid from the personal automobile policy (PAP) and how much from the excess liability policy? Show your computations.

6A. $300,000 PAP and $0 excess liability

6B. $0 PAP and $300,000 excess liability

6C. $150,000 PAP and $150,000 excess liability

6D. $50,000 PAP and $250,000 excess liability

6E. $250,000 PAP and $50,000 excess liability

Anna DeCile, 49, is feeling the financial fallout from a divorce. Her lifestyle has dramatically changed with the loss of her husband's income and she fears retirement looming on the horizon. She plans to work until age 70 in order to play catch-up. Then she wants to move south to a cheaper location in Virginia or the Carolinas to retire.

DeCile earns $29, 573 ($2, 479 monthly) and noted that she has two adult children. She also noted that a long-term goal was "someone to care for me when I am unable to care for myself," but the specifics were unclear. Other financial goals in the short and intermediate term are a $1,800 cruise, $2,000 of home improvements, pre-paid funeral expenses, and "money to live on $3,500 per month."

Another concern is health insurance. After her divorce, DeCile felt that she could not afford to pay her ex-husband's employer over $5,000 annually for coverage. She lives in fear of a major illness or disease (e.g., cancer) because her current employer does not provide health benefits.

DeCile has been gradually spending money received from her divorce settlement to make ends meet. The simple fact is that she can't afford her lifestyle and her savings is running out. She estimates that there is at least a $500 per month gap between what she earns and what she spends. No specific monthly expense figures were provided, but she listed car insurance as a major concern.

Asset and debt figures were listed, however. DeCile's net worth is $121, 293. Her major asset is her $145,000 home. She also has $206 in checking, $1,960 in savings, $5,786 in two bank CDs, a $2,625 money market fund, $4,602 in mutual funds, $3,514 in stocks, and $20,000 of personal property.

On the debt side, DeCile owes $56, 032 on her home, a $28,759 mortgage and a $27, 273 home equity loan. Other debts are a $4,611 personal loan and $1,760 owed to a friend. DeCile is concerned that her debt load has been rising. Her house needed a number of repairs, which resulted in the home equity loan.

DeCile has no will to indicate her estate planning wishes. "I don't have enough to worry about, she notes. She has a $20,000 whole life policy that could pay funeral costs and $300,000 of liability coverage on her car. She has no earmarked retirement savings such as a 401(k) or IRA.

1.Discuss the strengths and weaknesses of DeCile's financial situation.

2.Discuss the strengths and weaknesses of DeCile's financial situation.

3.Comments about DeCile's cash flow.

4.Calculate the savings required to reach DeCile's financial goals.

5.Recommend 3 to 5 action steps to improve DeCile's financial

6. Recommended financial products such as bank accounts, insurance policies, and mutual funds for DeCile.

7.List the available resources that can assist DeCile'sto improve her finances.