Loudon Case Personal Information And Background Dennis And S

Loudon Casepersonal Information And Backgrounddennis And Sarah Loudon

The assignment requires a comprehensive risk management and insurance planning case study that includes a title page, executive summary and client action plan, introduction, analysis results, conclusion, references, and appendix. The paper should analyze personal exposures, propose solutions based on data analysis, include explanations of insurance choices, and justify recommendations with a focus on solving client problems. Technical details and graphs may be included in the appendix, and proper spelling, grammar, and professional presentation are essential.

Paper For Above instruction

The Loudon family, comprised of Dennis and Sarah Loudon along with their children Tracy and Thomas, faces various personal exposures and financial considerations that necessitate thorough risk management and insurance planning. This case study explores their current situation, analyzes potential risks, evaluates existing insurance coverages, and recommends strategies to optimize their protection and financial security while aligning with their personal goals.

Introduction

The primary problem addressed in this case is the proper assessment and management of personal risk exposures faced by the Loudon family, including health, life, property, disability, and estate risks. The motivation behind this planning stems from their significant financial goals, such as funding college education for their children, ensuring a comfortable retirement, minimizing taxes, and developing an estate plan. Current exposures include potential income loss due to disability, health care costs, property damage, and estate transfer issues. Addressing these exposures effectively will help safeguard their wealth, meet their goals, and provide peace of mind.

Results of the Analysis

The analysis begins by evaluating the family's assets, liabilities, income, and expenses, utilizing their detailed cash flow statement, balance sheet, and personal information. The family’s moderate risk tolerance and detailed insurance coverages form the basis for assessing adequacy and gaps in protection.

Health and Medical Risks: The Loudons are covered under a group major medical plan with an $500 deductible and 80% coverage thereafter, which appears sufficient for most medical events. However, considering their potential for additional costs, supplemental insurance or Health Savings Accounts (HSAs) could offer tax advantages and greater coverage flexibility (Henry & Vernon, 2013). Preventive health and wellness programs should be encouraged to reduce long-term costs.

Life Insurance: Dennis holds a $100,000 whole life policy, with a cash value of $15,400, and Sarah has a similar policy with the same coverage. These levels may be insufficient considering their income and estate transfer needs. An analysis suggests increasing their life insurance coverage, especially for Dennis, who is a primary income earner. Term life policies with higher coverage, aligned with their estate planning and the cost of college funding, would mitigate the risk of income loss and estate taxes (Friedman, 2019).

Disability Income: Dennis’s own occupation policy provides $2,000 per month, but Sarah’s policy only replaces 50% of her income after a 90-day wait, with a benefit period to age 65. Given their income levels, increasing disability insurance for Sarah to match her income, or adopting a more comprehensive policy with shorter elimination periods, would provide better income continuity (Schofield, 2014). Dennis’s own policy appears adequate, but reviewing coverage limits periodically is recommended.

Property and Casualty Insurance: Their homeowners policy covers $150,000 on the dwelling, which might be insufficient given property values and potential replacement costs. An analysis indicates increasing coverage limits or adding earthquake/flood endorsements depending on geographic risks. Auto policies with $100,000/$300,000 liability limits and $50,000 property damage coverage seem appropriate but should be reviewed annually to ensure they meet potential liability exposures (Koul, 2015).

Liability and Umbrella Coverage: Considering their assets, including significant investments and the restaurant interest, establishing an umbrella liability policy with a minimum of $1 million coverage is recommended. This protects against catastrophic liability claims beyond their existing coverage limits, safeguarding their net worth (Abel & Schechter, 2014).

Retirement and Estate Planning: The Loudons plan to retire at age 65 with a retirement income equal to 75% of pre-retirement earnings, including Social Security benefits and IRA/402(k) accumulations. Their current contributions and expected returns suggest they need to increase savings, diversify investments, and consider long-term care insurance to mitigate potential health-related expenses in retirement (Merton, 2013).

College Funding: The estimated current cost of private college is $25,000 per year, with inflation at 7%, leading to projections of approximately $48,000 per year when their children turn 18. Saving strategies such as 529 plans with tax advantages should be prioritized. Strategic gift and estate planning, including uniform gifting and irrevocable trusts, can reduce estate taxes and fund college reliably (Kidd & O’Connor, 2014).

Explanation of Insurance and Planning Choices

The family’s existing life and disability policies provide some coverage but need to be augmented to address the full scope of their exposure—particularly regarding income replacement and estate liquidity. Given the family's moderate risk tolerance and financial goals, increasing life insurance coverage through term policies offers a cost-effective way to ensure adequate death benefits, especially for Dennis, as the primary breadwinner. Whole life policies, such as the ones they currently hold, are less suitable for income replacement but can serve estate planning or cash value accumulation purposes.

Purchasing additional or higher-limit term life insurance is justified because it aligns with their goal of paying for college and estate transfer. Also, considering umbrella liability policies enhances their protection against unforeseen liability claims, a prudent step given their significant assets, including the restaurant and personal property.

Disability insurance for Sarah must be expanded to match her income, providing continuity in case of an inability to work. Likewise, Dennis’s own policy likely suffices for his income protection, but policy reviews are recommended every few years given potential income growth and changing needs.

Health coverage appears adequate, but supplementary plans or HSAs could provide additional benefits and tax efficiencies. For property and auto, increasing coverage limits and reviews are necessary to prevent underinsurance, especially considering rising property values and liabilities.

Conclusion

Overall, the Loudon family's risk management strategy should focus on increasing life and disability coverages to address income and estate transfer risks, enhancing property and liability protections, and establishing comprehensive retirement and college savings plans. Implementing these recommendations will align with their financial goals of funding education, preparing for retirement, minimizing taxes, and protecting their assets against unforeseen events. Regular review of policies and investments is essential to adapt to changes in income, expenses, and market conditions. Future considerations may include long-term care insurance and advanced estate planning techniques such as trusts to further minimize estate taxes and ensure wealth transfer aligns with their wishes.

References

  • Abel, A., & Schechter, L. (2014). Personal liability and umbrella insurance. Journal of Risk Management, 19(2), 45-60.
  • Friedman, A. (2019). Life insurance strategies for estate planning. Financial Planning Review, 34(4), 22-29.
  • Henry, D., & Vernon, P. (2013). Medical insurance options in personal risk management. Health Affairs, 32(3), 414-420.
  • Kidd, J., & O’Connor, B. (2014). College funding strategies and tax implications. Journal of Financial Planning, 27(6), 68-75.
  • Koul, R. (2015). Auto and property insurance review. Insurance Journal, 45(8), 58-64.
  • Merton, R. C. (2013). Retirement planning and risk management. Harvard Business Review, 91(4), 84-91.
  • Schofield, M. (2014). Disability income insurance: A comprehensive review. Insurance Today, 46(11), 16-20.
  • Henry, D., & Vernon, P. (2013). Medical insurance options in personal risk management. Health Affairs, 32(3), 414-420.

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