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Homework answers / question archive / Activity 1: Life Insurance for the Young Married Jeff and Ann are both 28 years old

Activity 1: Life Insurance for the Young Married Jeff and Ann are both 28 years old

Finance

Activity 1: Life Insurance for the Young Married Jeff and Ann are both 28 years old. They have been married for three years, and they have a son who is almost two. They expect their second child in a few months. Jeff is a teller in a local bank. He has just received a $60-a-week raise. His income is $960 a week, which, after taxes, leaves him with $3,200 a month. His company provides $50,000 of life insurance, a medical/hospital/surgical plan, and a major medical plan. All of these group plans protect him as long as he stays with the bank. When Jeff received his raise, he decided that part of it should be used to add to his family’s protection. Jeff and Ann talked to their insurance agent, who reviewed the insurance Jeff obtained through his job. Under Social Security, they also had some basic protection against the loss of Jeff’s income if he became totally disabled or if he died before the children were 18. But most of this protection was only basic, a kind of floor for Jeff and Ann to build on. For example, monthly Social Security payments to Ann would be approximately $1,550 if Jeff died leaving two children under age 18. Yet the family’s total expenses would soon be higher after the birth of the second baby. Although the family’s expenses would be lowered if Jeff died, they would be at least $500 a month more than Social Security would provide.

Questions 1. What type of policy would you suggest for Jeff and Ann? Why?

2. In your opinion do Jeff and Ann need additional insurance? Why or why not?

Activity 2: An Argument About the Value of Insurance
You have been talking to some friends about insurance. One young married couple in the group
believes that insurance is really a waste of money in most cases. They argue, “The odds of most
bad events occurring are so low that you need not worry.” Furthermore, they say, “Buying insurance
is like pouring money down a hole; you rarely have anything to show for it in the end.” Based on
what you have learned from this chapter, how might you argue against this couple’s point of view?

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Activity 2 Question 1

As the present policy provided to Jeff from his bank is only a health insurance policy which shall also benefit to him as long as he is working with the bank - His family is not yet covered under this medical insurance plan.

In addition, the social security benefits that Jeff's family shall get in the event of his disablement or death would be insufficient for his family.

In such a scenario, two types of plans would be suggested to Jeff: -

  • Comprehensive Medical Plan which shall cover Jeff as well as his family including his appx 2 year old child and to be born child. Such medical plans are called as floating plans. Or as Jeff is already insured by his bank, he can buy a comprehensive plan for his wife and children separately taking into consideration the affordability of the plan.
  • Term Plan for Jeff which shall provide his family monthly disbursements in the event of his death or disbalement. Such plan's cost/premiums depends on the monthly disbursements to be made to his family upon his death or disablement.

A combination of these two plans may cost him extra for present but will secure his entire family from mishappenings that could happen and after effects thereof.

Activity 2 Question 2. As discussed in question 1 above, yes Jeff and Anne do need additional insurance for the family's long term safety. The reasons for the same is that under the present plan, only Jeff is covered for medical expenses that too until when he is working with bank. Medical emergency could arise to anyone in the family and hence expense load on the Jeff's salary would be increased. Secondly, term plan is needed because the social security benefit that shall be disbursed to his family in the event of death or disablement of Jeff before his children turns 18 shall not be sufficient.

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