Life Insurance Benefits in the Company - Essay Example

Risk Management and Life Insurance Question #2 Ken’s present life insurance benefits are adequate because with the current arrangements all of his beneficiaries are catered for, but as time goes by their liabilities will start surpassing their monthly and annual income. The cost of covering their liabilities will keep on increasing with no increase in income because Sandra’s job does not offer enough room for advancement. The future projections in salaries’ increase are not enough to cover the projected increase in the families’ liabilities. This because apart from catering for her family’s needs, she also has to cover her mother’s future needs. Question #3 The circumstances that it would be appropriate to treat mortgage redemption as an income need instead of immediate cash need are if Sandra agrees to pay off the mortgage in a shorter time frame than the one stipulated in the mortgage agreement. This would then turn the immediate cash need to an income need, which she will have to fulfil to be able to meet the conditions for mortgage redemption. Question #4 Ken might prefer to determine his life insurance needs by using the capital needs analysis approach rather than the financial needs analysis approach because the former relies on meeting income needs. Capital needs analysis does this by accounts for income needs with the earnings on a principal sum without liquidating that sum. It is good for some who wishes to meet the financial needs of their surviving family members without capital sum being liquidated. It also ensures that the estate they leave behind is not left for heirs or charity. Question #5 Additional insurance on Ken’s life insurance should be allocated between term insurance and cash value or permanent life insurance by considering the following. Term insurance helps provide for a family’s loss of income and cover short-term debts and needs. It provides additional insurance protection during the child raising years. Term insurance helps pay off mortgage or pay for a college education. This is the best option for Ken’s family is he were to die today instead of opting for permanent life insurance. Permanent life insurance would not address the immediate income needs of the family in case of any unforeseen eventualities. Question #6 Sandra needs additional life insurance because what she has done not cover her immediate needs. This is because she chose not to be included in her employer’s life insurance plan. She did this because her husband’s cover was enough, for both of them, but it will be a strain, on both of them, if her mother’s health is factored into the equation. Sandra should increase her life insurance cover to ensure that it caters for the eventuality that her mother does need late life medical home care. She should consider joining her employer’s insurance plan, which will help boost the family’s insurance cover and increase the potential benefits that could be accrued from doing so. Question #7 To evaluate properly, the adequacy of Dawson’s family medical expense coverage, information on all insured persons should be considered to ascertain their eligibility. This should include spouses and relatives living within the household. For the medical expenses coverage to be adequate they should ensure that all their motor bikes, cars and boats are included and accounted for in the cover. This makes sure that every individual in the family is covered for any unforeseen eventuality involving any of the mentioned auto machines. Question # 8 Ken and Sandra’s current disability income coverage is adequate to the extent that it only covers their liabilities, only if they come into harms way in one of their vehicles or boats. Any other bodily harm that they could experience outside these provisions would not be covered. Question # 9 The deficiencies in Dawson’s liability insurance coverage include a lack of future projections on the increasing risk associated with their children’s life. This is because as their children continue to grow, their liabilities continue to increase. Their insurance cover should consider this and factor in their liability, which should see their cover increasing exponentially as years go by until a time when they can be self-sufficient. The fact that their liability insurance cover does not factor in Sandra’s liability to her mother, is a deficiency that should be addressed because it could pose a strain in their finances in the future. Question #10 Medicare addresses long-term care needs, for Sandra’s mother, by listing her under the pension scheme plan or under noncontributory group term life insurance, for Sandra and her husband, which is provided for by their respective companies. Question #11 States usually organize social security funds scheme, which lists all aging people under the pension scheme plan, which ensures that they receive adequate funds for long-term care including health after retirement. Question #12 These will include: (1) Accepting $310,000 noncontributory group term life insurance that will even include Sandra’s mother. (2) Encouraging Sandra to adopt $38,000 of noncontributory group term life insurance where he will be the key beneficiary. (3)Sandra should accept a profit-sharing plan with Ken for which her company’s annual contribution is equal to about 10 % of Sandra’s salary. This plan will run for a period of five years at the time of her death. Question #13 Other than using loan obtained, from the bank, to purchase shares of additional interest, there are other alternative sources of funding Ken can use, and this includes personal savings, building societies, share issue, venture capital, and leasing and hire purchase. Building societies is a type of funding similar to banks. However, they majorly specialize in offering mortgages. Share issues are shares sold to Ken and his friend with the aim of giving them power over the business control. Venture capital is the money invested in a given business with the aim of making profit to purchase additional shares. Leasing and hire purchase is a situation where Ken sells some of his property to get money for buying the company’s shares. Question #14 When one or both firm’s founders cease to be an employee of the company through death or disability, Ken will be given a new repurchase option where he will be required to state the number of shares he will buy and the price per share he will pay, which is a subject equitable to adjustment for any stock dividend. Stock split or combination of shares, other than the original shares he had earlier planned to purchase. Question #15 Buy-sell agreement should include the following provisions in order to become effective after death or disability of the founders: should allow the company or other shareholder to purchase shares of the disabled founder; should call for an extended payment period; should be able to secure disability policy; should have a waiting period; should call for immediate sale in case of death of one or both founders; and the remaining founder should be able to solve treatment of life insurance proceeds. Question #16 Alternative sources of funding in case of death or disability of one or both founders include cash, borrowing from financial institutions, life insurance, sinking fund, private annuity, and installment payments. Question #17 In this case, Ken is considered as a minor shareholder in this company. Therefore, he has limited powers to participate actively in the decision-making process or block other shareholders’ decisions. This problem can be solved by making equal shares available for purchase for both Ken and his senior Vice-president. This will ensure that they will have equal shares in making decisions once the founders cease to employees of this firm. Recommendations Since Dawsons’ medical expense is adequate, I recommend that Ken should decline the funds the company is setting aside for their medical insurance, which is unlimited lifetime maximum benefit and includes $3,000 stop-loss. This is because this plan will require him to pay $300 per month for her spouse and children, which will see him incur more expenses that exceeds the total expenditure they are planning to minimize. On the other hand, when Ken is planning to cater for Sandra’s mother financial needs, then he should encourage Sandra to accept a salary continuation plan, which will pay disability income benefit that is equal to her salary for up to three months. This will ensure that they reduce their expenses for catering for the old and disabled people under their care. Read More