Question

In: Finance

Life Situation Financial Data Pam, 36 Josh, 38 3 Children, ages 9, 7 and 4 Monthly...

Life Situation Financial Data Pam, 36 Josh, 38 3 Children, ages 9, 7 and 4 Monthly income $4,300 Living expenses $4,075 Assets $50,850 Liabilities $99,520 The Brocks are assessing their health insurance coverage. Since Josh's current employer offers him only 30 days of sick leave, they need to consider this factor when assessing disability insurance plans. Since Pam's work activities have varied, the family is dependent on Josh's health insurance. In recent weeks, his company is considering several types of plans. These alternatives include traditional health insurance programs and HMOs, with a wide variety of coverage and cost differences. Both Pam and Josh Brock are pleased with their lives and various family activities. They now have three children, are enjoying their home, and are more financially secure than six years ago. Yet the Brocks still have financial needs they must address. Several changes have affected their financial planning. The value of their home has increased due to inflation and home improvements. They have purchased a used car to meet additional transportation needs. These situations must be considered in relation to insurance needs for the Brock household.

Questions

Q1. When considering disability income insurance, what length of waiting period and duration of benefits should the Brocks consider?

Q2. What types of health insurance coverage would be recommended for the Brocks?

Q3. How should the Brocks determine whether they have enough insurance coverage for their home?

Q4. What factors should the Brocks consider in deciding whether to purchase collision insurance coverage for their used car?

Solutions

Expert Solution

Q1: When considering disability income insurance, what length of waiting period and duration of benefits should the Brocks consider?

Considering that disability insurance is being taken to replace the income, it’ll be unnecessary after the working age of Josh is over. Assuming the retirement age at 60, he is currently 38 so duration of benefits should be until he turns 60 that is , 60 – 38 =22 years.

As he gets 30 days sick leave from his employer, a 30 day waiting period for the policy should be appropriate.

Q2: What types of health insurance coverage would be recommended for the Brocks?

The cost of Health insurance will largely be determined by the kind of coverage and the provisions that one is looking for. For Brocks, we can see that their expenses are very close to their income and there is not a lot of amount to spare. Also, they have higher liabilities. Considering this, a very expansive health insurance is not feasible. However, they still need a good HMO plan with a strong network of physicians to minimize their future treatment costs by using HMO plan for regular visits. Indemnity plan, where they need to pay certain percentage of fees but can avail services from any medical provider will also be suitable for the Brocks.

Q3: How should the Brocks determine whether they have enough insurance coverage for their home?

There are several factors that must be considered. First an assessment of potential loss through various events like fire, accidents ( collisions ), theft etc. and based on the potential value of the loss, the cover should be taken such that the cost of insurance coverage is less than the potential loss ( including their probabilities ). It seems that Brocks’ home is a significant portion of their wealth and therefore they must have adequate protection to conserve this asset for future use.

Q4: What factors should the Brocks consider in deciding whether to purchase collision insurance coverage for their used car?

Factors to consider are:

  • Value of the car and the driving record of the primary operator
  • Cost of the collision coverage and what is the probability of Collison ( factoring issues like weather normal weather conditions in their area, accident history in the region, drunk driving cases registered in the past etc. )
  • What deductible amounts are available to be selected
  • What all liabilities they want covered through the car insurance.

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