Question

Home and Automobile Insurance

Newlyweds Jamie Lee and Ross have had several milestones in the past year. They are newlyweds, recently purchased their first home and now have twins on the way!

Jamie Lee and Ross have to seriously consider their insurance needs. A family, a home and now babies on the way, they need to develop a risk management plan to help them should an unexpected event arise.

Current Financial Situation:

Assets (Jamie Lee and Ross combined):

Checking account: $4,300

Savings Account: $22,200

Emergency Fund savings account: $20,500

IRA balance: $26,000

Car: $10,000 (Jamie Lee) and $18,000 (Ross)

Liabilities (Jamie Lee and Ross combined):

Student loan balance: $0

Credit Card Balance: $2,000

Car Loans: $6,000

Income:

Jamie Lee: $50,000 gross income ($37,500 net income after taxes)

Ross: $75,000 gross income ($64,000 net income after taxes)

Monthly Expenses (combined):

Mortgage: $1,252

Property Taxes and Insurance: $500

Utilities: $195

Food: $400

Gas/Maintenance: $275

Credit Card Payment: $250

Car Loan Payment: $289

Entertainment: $300

Questions:

1. Based on their current life status, what are some of the goals Jamie Lee and Ross should set to achieve when developing their insurance plan?

2. What four questions should Jamie Lee and Ross ask themselves as they develop the risk management plan?

3. Once Jamie Lee and Ross put their insurance plan into action, what should they do to maintain their plan?

4. Jamie and Ross decided to conduct a check-up on their homeowner’s insurance policy. They noticed that they had omitted covering Jamie Lee’s diamond wedding band set from their policy. What if it got lost or stolen? It was a major purchase and besides the emotional value, the cost to replace the diamond jewelry would be very high

Answer 1

Working :

Amount remaining in hands of Jamie Lee and Ross Annually after paying expenses and taxes :

Particulars	Amount	Amount
Income:
Jamie Lee: $50,000 gross income ($37,500 net income after taxes)		$ 37,500
Ross: $75,000 gross income ($64,000 net income after taxes)		$ 64,000
Total Income After Tax		$101,500
Less : Expenses
Monthly Expenses (combined):
Mortgage:	$1,252
Property Taxes and Insurance:	$500
Utilities:	$195
Food:	$400
Gas/Maintenance:	$275
Credit Card Payment:	$250
Car Loan Payment:	$289
Entertainment:	$300
Total Monthly Expense	3,461
Annual Expense	= 3,461 x 12 months = 41,532	$ 41,532
Amount remaining in hands of Jamie Lee and Ross Annually after paying expenses and taxes		59,968

1. The goals Jamie Lee and Ross should set to achieve when developing their insurance plan in current life status are :

• Pay full liabilities of car loan and credit card balance .
• Create emergency or operational short term fund which enables the short term needs in day to day operations and short term needs of new babies.
• Invest in the Long term plan to secure future with retirement plan. Increase savings in such plans
• Buy home for family
• Cover the education, life, medical of the family with insurance coverage. It gives the family security also, remaining funds increases the cash liquidity in hands of both which reduces the loan if required in future or it gives comfort of loan free life.

2. four questions should Jamie Lee and Ross ask themselves as they develop the risk management plan :

• What are the known and unknown , risks and uncertainties in life are there as per Jamie Lee and Ross ?
• How much are the savings and funds available with Jamie Lee and Ross ?
• How much amount will they wanted to spend on the risk coverage ? Accordingly choose a Insurance Plan
• How much amount they require to maintain the current standard of living with goals at present and in future ( Projected) ?

3. Once Jamie Lee and Ross put their insurance plan into action, following should they do to maintain their plan :

• Set aside the amount of premium of insurance plan yearly at beginning of the year
• Renew the insurance at every period required as per insurance policy.
• Review the Insurance plan at intervals and check whether it is covering the all risks and needs of the family as per goals.

4.As given situation, Jamie Lee and Ross either ask the insurance agent to cover the ring and pay the insurance premium for the same or as the value of the ring is very high then insurance premium also be high Hence, in such case  Jamie Lee and Ross will put the ring into the bank locker and pay the locker rent which is much lower than the Insurance Premium.