copyscape plagiarism

Dawson Case Study Prepared for Professor Curti Prepared by Jacob Blanchard 3/23/2015 Table of Contents Life, Medical, Disability, Property and Liability.........................................................................pg 1-3 Long-term care for Sandra's Mother...............................................................................................pg 4 Designing and Funding Buy-Sell Agreements.............................................................................pg 5-7 Dawson Case Study 1. According to the info given to us in question one and using the Insurance Needs Analysis Work Sheet given to us by Leimberg, Doyle & Buck(2012), the Dawsons don't have enough life insurance coverage because their current cash needs consist of $443,000 dollars if Ken were to pass away which includes the final expenses, mortgage and the bank loan that Ken has among other funds and costs that the Dawsons would have left to pay upon his death. Sandra only makes $38,000 which is subtracted from the needs analysis. In the first year of Kens death, not adjusting for interest and growth rates adding in all the income Sandra and children would get, needs for the first year are $33,300 of capital needs, the total need is $476300 and when you take away the current value of their assets which is $972,000 you get a -$495700 which is in the red and is obviously not enough insurance for the current lifestyle the Dawsons are living. 2. To treat the mortgage redemption as an income need, the mortgage would have to not be paid off with a life insurance policy and still have payments on the home if Ken were to die today. 3. Ken might prefer to determine his life insurance needs by using the capital needs analysis(income approach) instead of the financial needs analysis because according to Leimberg, et al.,(2012) on page 631 in the description is that the capital needs analysis takes in to account how the assets that one has currently and may acquire down the line could play into bringing more income into the family in the case of Ken's passing. Kens assets are relatively high so that is why Ken may consider using the capital needs analysis approach instead of the financial needs approach. 4. Any additional insurance on Ken's life should allocated with term insurance being about 50% of new life insurance coverage because term insurance is cheaper and you can always renew the policy if you select a renewable policy, also a convertible policy if you can get both would be beneficial because Ken could convert it into a different type of life insurance policy according to Leimberg, et al.,(2012). Since term life insurance policies don't provide any cash payments unless someone dies during the term that the insurance was purchased for, a universal life policy for 50% of total life insurance bringing the total up to 100%. According to Leimberg, et al, (2012) universal life is very flexible, letting whoever owns the policy to pick how much premium they pay for the life insurance policy and change it down the line, also has a death benefit that is adjustable and lets the insured change their death benefit if different situations occur. Since Ken and Sandra want to lower their tax implications, a universal life would be beneficial because whoever the beneficiaries are generally don't have to pay any federal income tax on the benefits but may have to pay other types of tax according to Leimberg, et al.,(2012) 5. Sandra needs more life insurance because she only has $38,000 of noncontributory group term life insurance through her work and her profit sharing that Ken would receive at death is currently zero, even with Ken's current salary and if she were to die today they would not have enough based on Ken's current salary and Sandras life insurance policy to pay immediate cash needs given in problem one. 6. According to Barlow et al. (2007), information needs to evaluate the adequacy of the Dawson's medical coverage would be circumstances in the family, how much money the family makes and is different for for each person in the family due to these differing factors. 7. If Ken were disabled today at a base salary of $155,000, his disability insurance would cover him for 6 months at 100% of his base salary, and if disabled for longer than 6 months it would be 60% of his base salary which would be $93,000 for 2008. Althought cuts would have to be made, Ken's disability insurance is adequate. Sandra only has her salary continuation plan that would only pay her current salary for 3 months. Sandras disability insurance is not adequate because her disability insurance is only for the short term. Sandra should inquire about a disability policy with a residual disability clause since if she becomes disabled, she would get paid the difference of what she used to make before becoming disabled and what she makes after she was disabled and not being able to perform to her full performance from before she was disabled according to Barlow et al. (2007). 8. The deficiencies in the Dawsons' property insurance coverage is that under the current HO-3 policy that the Dawsons' have is that the dwelling is only covered for $400,000 while their property would cost around $600,000 to fix. In order to address this deficiency in property insurance coverage, a policy that covers at least $600,000 to replace the home in case of total loss. According to Barlow et al, (2007) if a total loss occurred and with the Dawsons' current property coverage that they cannot replace their $600,000 home with a home of a lower cost to make up for the property that was inside the house, jewelry is not usually covered and if it is, it isn't covered by a generous amount. Barlow et al, (2007) states that the jewelry and silverware that was given to Sandra by Ken from his mother should be scheduled within the homeowners policy to make sure that they are covered under the property insurance. Ken and Sandra should increase the amount of property insurance on their policy for their homeowners to equal the amount of valuable possessions and things that would needed to be replaced inside the home. 9. The deficiencies in the Dawsons' liability insurance is the one that is included under their homeowners policy of $100,000. This seems like an awfully low amount for the property that the Dawsons' are currently at. According to Barlow et al, (2007) liability insurance for homeowners policies is included under section II and can include medical payments or injury caused negligently. The Dawsons' children could have friends over and they could get hurt by falling down the stairs or a something negligently placed on a shelf or the roof could collapse on more than one children and it would not be enough to cover all these expenses. Also to cover Sandras photography business, that would also have to be scheduled 10. According to Barlow et al, (2007) long term-care needs aren't usually going to included in Medicare coverage, and if it is, it only is for a certain amount of time before the person will have to pay for it themselves by selling off all personal assets in order to pay for the long-term care expenses. 11. State social assistance programs such as Medicaid are only going to help if the persons assets are liquidated to pay for long-term care and even then a person may not qualify, people who have Medicaid is most likely going to be in a nursing home according to Barlow et al. (2007) 12. Since the Dawsons' assets are over $900,000 and their income is over $35,000 as stated in Barlow et al, (2007) which is way above the recommended income and asset amount to consider long-term care insurance, the Dawson's should consider either setting away some money in savings account to care for Sandras mother or select a long-term care policy that would help them pay these costs if she was to be put in a nursing in the years to come with inflation protection that will protect against inflation that rises year after year according to Barlow et al (2007). 13. Alternative ways that Ken could pay for the additional interest in the business is that he could pay with cash if he was able to come up with the sum that the business would cost 10 years down the line or he can finance it like he did with his 10% that he currently owns. 14. The consequences currently would be that Ken wouldn't be able to buy the remaining stake in the company because he wouldn't be able to afford the current $450,000 without taking out loans to finance the purchase. 15. According to Leimberg et al, (2012) a buy-sell agreement should contain provisions such as the business purpose, what will make the buy-sell agreement occur, and what would happen to during bankruptcy or if the business was dissolved, and also a price that the business would be sold for under the buy-sell agreement. 16. According to Leimberg et al, (2012) the other ways to fund a buy-sell agreement would be that of a cash payment in full, making payments in a specified time frame or borrowing from a lender. 17. The business continuation problems that now exist between Ken and the other vice president is that they don't have a buy-sell with one another when they purchase the remaining stake from the founders. If Ken were to die, the other vice president might not be ready to take on the whole business by himself, financially or mentally and the same with Ken. When the time comes, the two should have a buy-sell agreement with each other that states what happens when one of them passes on to the business and it's assets or if they both die simultaneously, then what will happen to the business, will their stake be handed down to their family members who know nothing about the business or will the business be sold. The life insurance amounts that the Dawsons' have currently aren't adequate and should be adjusted so they can make it a little easier financially for one another if one decides to pass on. Sandra should get long-term care insurance for her mother in case Ken passes away and can't provide financial support for her mother. Ken should enter into a buy-sell agreement with the firms founders and then a buy-sell agreement with the other vice president of the company so they are prepared for the worst that could happen. Increase liability insurance because $100,000 may seem like a lot but if multiple people are hurt on their residence, costs could add up quickly. In conclusion the Dawsons' are pretty well covered but need to improve in a few select areas. References Leimberg, Stephen , Robert Doyle Jr and Keith A Buck. 2008. The Tools & Techniques of Life Insurance Planning. 5th ed. Erlanger, KY: The National Underwriter Company