Home Insurance Needs Projects FINC 352 Home Insurance Needs Project Refer to the Ken and Beverly Austin Case Study. Next, using the MS Excel Template for Home Insurance answer the following questions: What type and how much Home Insurance do the Austin’s have for: a. b. c. d. e. f. Type Contents coverage Premium (annual) Deductible Medical payments (per person) Depreciated or actual cash value of Austin’s property (10 points) The fire that destroyed the Austin’s apartment building has also destroyed all of the Austin's personal property. Although the depreciated or actual cash value is $5,000. It should cost Ken and Beverly about $37,000 to replace all of their lost items. 1. How much will the insurance company pay for the Austin’s loss? (30 Points) 2. Will the Homeowners Insurance cover some of the Austin’s loss? (30 Points) 3. If the Homeowner’s Insurance does not cover the Austin’s loss, what type of Homeowner’s Insurance would have covered the value of all of their personal property? (30 Points) Submit your MS Excel Template with a narrative to answer all the questions to your Home Insurance Needs Assignment Folder. Ken and Beverly Austin Homeowner insurance Needs Student Template Homeowners (HO) Insurance: Basic Forms Available HO-2 Broad Form (named perils) HO-3 Special From (open perils) HO-4 Tenants and Renters HO-5 Comprehensive For (open period parts A, B, C, and D) HO-6 Condominium Owners HO-8 Modified Form for Special Risks Austin's Renters Insurance Type Contents coverage Premium (annually) Deductible Liability Medical payments (per person0 Depreciated or actual cash value of the Austin's property The fire that destroyed the apartment building, also destroyed all of their personal property. Although the depreciated or actual cash value of all the property is $5,0000. It should cost the Austin's about $37,000 to replace all of their lost items. 1, How much will the insurance company pay for the Austin's loss? How much will the insurance company pay for the Austin's loss? Actual cash value less the deductible = How much the insurance company will pay 2. Does the Homeowner's Insurance cover some of the Austin's loss? Had the endorsement to the renters policy for replacement cost been added to the Austin's policy, the insurance company would have pad the replacement cost of the pro4ety; less a deductible, up to stated limits. 3. If the Homeowner's insurance does not cover the Austin's loss. What type of Homeowner's insurance would have covered the value of all of their personal property? HO-4 $35,000 $600 $250 $100,000 $1,000 $5,000 $37,000 ds Ken and Beverly Austin Case Study Ken and Beverly Austin Case Study Ken and Beverly Aust have come to you, a financial planner, for help in developing a plan to accomplish their financial goals. From your initial meeting together you have gathered the following information. Assume today is January 1, 2019. Personal Background and Information Ken Austin (Age 26) Ken Austin is employed as a salesperson for a rapidly growing air conditioning and heating service company. He has been employed with the company for five years. Ken has tremendous potential and has positioned himself for advancement. Beverly Austin (Age 26) Beverly Austin is a Canadian citizen and is employed as an interior design consultant for a home-decorating center. Beverly is studying for her interior design license and plans to become an independent design consultant in three years. Beverly is pregnant with twins. She started paid maternity leave for six months beginning September 2018 and ending two months after the twins are expected to be born. Children Austin’s son, Jack, was born on June 1, 2017. The twins are expected to be born in late January 2019. Jack is perfectly healthy, and there is no history of pregnancy-related complications in either Beverly or Ken’s family. Personal and Financial Objectives 1. Ken wants to start his own business in 10-years. In the meantime, he plans to advance in his current job. He wants to open a business similar to that of his current employer and expects to need $100,000 in today's dollars to start the company. 2. The Austins want to buy a house for approximately $110,000 in a rural area with little or no crime. They expect taxes and homeowners insurance to average $200 per month combined. 3. Beverly would like to pursue an interior design license. Ken wants to sharpen his business skills by attending a local MBA program, which he expects to begin in September 2021. He will pay for the program himself. The expected cost is $18,000 ($600 per credit hours in today’s dollars). 4. They want each of their children to receive a private school education and would like to create a fund for this purpose. The current cost of the desired school is $2,500 per child annually for elementary and $5,000 per year for middle and high school. College tuition is expected to be $8,000 per year (see Economic Information). 5. They want to purchase a new car within the next six months in a price range between $20,000 and $25,000. 1 6. They would like to buy new furniture for the new house (valued at $8,000 to $10,000 in today’s dollars.) 7. They plan to create an emergency fund of at least six months’ salary ($24,000). Currently, they only have a small savings balance; therefore, this amount needs to be saved in installments over the next four years. 8. They plan to retire in 30 years and travel. 9. They expect their income to increase by an average of 3.5% over their remaining worklife expectancy. 10. They both expect to live to age 90. Economic Information • Expected inflation will average 3.5% annually • The expected return for the S & P 500 Index is 11% • T-bills are currently yielding 5%. The long-term risk-free rate is 7% (Treasury bond). • Current mortgage rates are 7.5% for a fixed 15-year and 8.0% for a fixed 30-year • Home closing costs are expected to be 3% of any new mortgage • Savings accounts currently yield 1.5% annually, compounded monthly. • On-year CDs are currently yielding 5% • The unemployment rate is currently 6% • College tuition is expected to be $8,000 per year (expected to increase by 5% per year). Insurance Information Life Insurance Insured Owner Beneficiary Face Amount Cash Value Type of Policy Settlement Option Premium Ken Ken Beverly $50,000 $0 Term Lump-Sum Employer Paid Assumptions for Life Insurance Needs Calculations • • • • The surviving spouse will continue working at his or her present job. An education fund of $50,000 is needed in today’s dollars An emergency fund of $24,000 is needed for the survivor Funeral and debt expenses will be $50,000 as needed (included any probate costs) 2 • • • • • Survivor income needs are $3,200 per month in today’s dollars for 22 years at which time either spouse would be age 48. This is$1,200 more than is currently earned by either spouse. From age 48 to 67, the Survivor needs will be $3,000 per month ($41,000 above either spouse’s earnings in today’s dollars). At age 67, Social Security will provide $1,076 per month in today’s dollars. Life insurance proceeds will be invested at the long-term risk-free rate of return. If one of the Austins dies before retirement, the other will continue working until age 67. Social security benefits during the dependency period will be a family maximum of $1,603 per month (based on current earnings). Health insurance Premium Employer-paid for Ken. Beverly and the children are dependents under Ken’s policy Major medical with a $ 500,000-lifetime limit and an 80/20 coinsurance provision Maternity coverage also has an 80/20 coinsurance provision Dental coverage is not provided $250 per person (three-person maximum) $250 per person (three-person maximum) Coverage Deductible Family out-of-pocket limit Disability Insurance Neither Ken nor Beverly has disability insurance. Automobile Insurance Premium Bodily Bodily injury all persons Property damage Comprehensive Collision Uninsured Motorists insurance $1,000 total annual premium for both vehicles $10,000 $25,000 $5,000 for each vehicle $250 Deductible $250 Deductible $100,000 Renter’s Insurance Type Content’s coverage Premium Deductible Liability Medical Payments HO-4 $35,000 $600 annually $250 $100,000 $1,000 per person 3 HO-4 Policy Declaration Page Investment Information Both Ken and Beverly have a high-risk tolerance. They currently have a balance of $3,840 in Ken’s 401(k) plan provided by his employer. He is currently deferring 4% of his salary, while the maximum deferral allowed by the plan is 10%. The 401(k) plan offers a variety of mutual funds ranging from aggressive growth stock funds to Treasury money market funds. Ken currently has 100% invested in the growth fund. 4 Three years ago, Ken’s grandmother gave him shares of ABC stock. The fair market value of the stock at the date of the gift was $6,000 and the annual exclusion was unavailable. Ken’s grandmother originally paid $2,000 for the stock and paid a gift tax of $600 on the transfer. Austin’s required rate of return for investments is 1% below the S & P 500 Index return. Income Tax Information Ken and Beverly file a joint return. Their total tax rate is 24.65% (federal income tax average rate is 15%; the state income tax rate is 2%; FICA tax rate is 7.65^) Retirement Information Ken is a participant in his employer’s 401(k) plan. Beverly would like to contribute 45,000 to an individual retirement account (IRA) in early 2019. Gifts, Estates, Trusts, and Will Information Ken and Beverly have simple handwritten wills leaving all probate assets to each other. Last Wills and Testaments Beverly Last Will and Testament January 15, 2018 I, Beverly Jones Austin, a citizen of Canada domiciled in the United States of America, declare this to be my last will. I revoke all of my prior wills and codicils. I hereby give all of the property of which I die possessed to Ken Austin, my husband. Beverly Jones Austin Ken Last Will and Testament January 15, 2018 I, Ken Austin, a citizen of and domiciled in the United States of America, declare this to be my last will and testament. I revoke all of my prior wills and codicils. I hereby give all of the property of which I die possessed to Beverly Jones Austin, my wife. Ken Austin 5 STATEMENT OF CASH FLOWS Ken and Beverly Austin Monthly Statement of Cash Flows for 2018 (Expected to be similar for 2019) ______________________________________ 6 STATEMENT OF FINANCIAL POSITION Ken and Beverly Austin As of January 1, 2019 Assets Liabilities and Net Worth………. 7 Information Regarding Assets and Liabilities Detailed Investment Portfolio Ken’s 401(k) Plan Description Growth Fund Shares 93.0 Price / Share $41.29 Total Value $3,840 2017 Returns 13% 2018 Returns 7% Stock Portfolio Stock Date Acquired Cost Basis A B C D E TOTAL 1/11 3/13 5/108 6/18 7/18 $ 300 3,000 5,000 12,000 9,000 $29,300 Fair Market Value as of 1/1/19 $ 2,800 700 7,000 2,500 9,000 $22,000 Beta Current Dividend Growth of Dividend 1.3 1.6 1.0 1.1 1.2 N/A $ 200 33 400 197 500 $1,330 3.5% 5.00% 4.00% 2.00% 4.25 N/A Miscellaneous The Austin’s like to take two vacations each year with an average cost of $2,250 per vacation. Ken and Beverly also enjoy going out with friends or entertaining weekly. 8 
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