Question

Which of the following individuals is likely to need life insurance to manage their income risk? (select all that apply)

	A.	Shelby is 67 years old. She earns $40k per year, and her husband (age 70) earns $60k per year. Her kids are grown up and moved out. Her net worth is $56,000.
	B.	Caleb is 42 years old. He earns $50,000 per year, and his wife earns $53,000 per year. They have no children, and a net worth of $12,000.
	C.	Kyle is a 32-year old single father of a young daughter. He has a net worth of $29 million.
	D.	Kelly is 33 years old. She has three young children at home. Her husband is disabled and collects $14,000 per year in Social Security benefits. She earns $69,000 per year at her job. Her net worth is $28,000.
	E.	Garth is 21 years old. His net worth is -$35,000. He earns no wages or salary as a full-time student.

2. Explain the principle of risk pooling.

3.You have a client who is very concerned about outliving her money. Explain two approaches to managing this risk to your client.

Answer 1

1. The person requiring insurance is D

Kelly is 33 years old. She has three young children at home. Her husband is disabled and collects $14,000 per year in Social Security benefits. She earns $69,000 per year at her job. Her net worth is $28,000.

2. Risk pooling is a process why which the various insurance companies operating in the industry come together to share the risk in case of a catastrophe such as an earthquake or floods.

3. He should look at generating real returns when compared to his rate of inflation. In order to remove your clients concern you can suggest him to:

a. Invest a portion of his money in equity which will give real positive returns which are inflation protected over time or

b. Continue doing some kind of a Job even in retirement just to supplement the already having income from the money saved.