12819 Q MISC Insurance Planning

Bob Brown was recently involved in a minor auto accident. His car was hit from behind, and he, in turn, slammed into the car in front of him. He would like someone to explain his coverage and show him where, in his auto policy, each of his losses might be covered. Help him out by doing that for each of the following items.

1. The cost of a medical checkup for his passenger, Ruth
2. The front and rear damage to his car
3. The damage to the car in front of him
4. The damage to the car behind him
5. The total amount of liability protection for the bodily harm and property damage


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Sue and Tom Wright are assistant professors at the local university. They each take home about $40,000 per year after taxes. Sue is 37 years of age, and Tom is 35. Their two children, Mike and Karen, are 14 and 11.

Were either one to die, they estimate that the remaining family members would need about 75% of the present combined take-home pay to retain their current standard of living while the children are still dependent. This does not include an extra $50/ month in child-care expenses that would be required in a single-parent household. They estimate that survivors' benefits would total about $1,000 per month in child support.

Both Tom and Sue are knowledgeable investors. In the past, average after-tax returns on their investment portfolio have exceeded the rate of inflation by about 3%.

1. If Sue Wright was to die today, how much would the wrights need in the family maintenance fund? Use the "needs approach" and explain the reasons being your calculations.
2. Suppose the Wrights found that both Tom and Sue had a life insurance protection gap of $50,000. How might they go about searching for protection to close that gap.

Attached file(s):

12819 Q1 MISC.doc  View File

12819 Q2 MISC.doc  View File