Quantitative/Analytical Mini-Case Problems
1. Ambra is age 50 on and single. She is concerned about funding long-term care insurance costs in the future. Based on family history she has determined the following:

She will need coverage long-term care coverage beginning following: at age 78;
She will need coverage for six years;
Long-term care costs in her area are currently $72,000 per year;
Long-term care costs are increasing by 5% annually;
She can earn 7% on her savings and assets;
She currently earns $98,000 per year; and
She has saved $75,000 that she is willing to earmark for long-term care costs.

Use this information to answer the following questions:

a. What is the future value cost of long-term care coverage when Ambra enters a nursing facility?
b. What is the total cost for six years of coverage when Ambra enters a nursing facility? (present value of cost determined at age 78)
P6 Case Approach to Financial Planning
c. How long will Ambra's long-term care savings last when she enters a nursing facility?
d. Assume to help that Ambra has other property valued at $250,000. If she is willing to use pay for long-term care costs, does she need long-term care insurance at this this time?

Case Approach to Financial Planning
Quantitative/Analytical Mini-case Problems
1. Tarek Framborgia is considering the purchase of a disability for policy. a major He is currently 35 years old and earns $50,000 per year as a quality control engineer for a major industrial company. His greatest concern is that with his moderately strenuous job responsibilities and his potential for increasing earnings he be adequately covered should and off-the-job accident keep him from continuing his career. He has come to you with the following list of problems and questions:

a. If I purchase a policy that pays a fixed benefit of 90% of my current salary, how long will it be before this amount covers only 70% of my future salary if I assume salary increases of 4% per year?
b. Assuming the same policy as above, if I purchase a policy with a provision for future increases of $1,000 per year, how long will it cover at least 70% of my income.
c. If I assume that both my salary and the inflation rate increase at 4% per year, and that there is no floor or ceiling to my potential benefit increases because I purchase both the COLA and future increase option provisions on the above policy, how much should my annual benefit be in 25 years?

2. Samantha O'Reilly has come to your office for a second opinion about her individual her long-term disability policy. She was told that her best option for reducing the cost of policy was to choose a long elimination period. But she has become worried that she will not be able to pay her monthly expenses for the year-long elimination period. She has some savings, but she is afraid that is not enough.

a. If her current annual salary is $43,000, her taxes are $8,000, and she just barely manages to fund her Roth IRA each year with $5,000, how much of an emergency fund would she need to meet only her living expenses?
b. How long would it take her to achieve the emergency fund goal above if she currently has $18,500 saved, invests $300 per month, and earns an annual percentage yield or APY of 4.25% after taxes in her money market mutual fund.
c. If she could reduce her elimination period to nine months for an additional premium of $10 per month, how much would she need to save on a monthly basis in the same money market account to reach her emergency fund goal within 12 months? Could she afford this savings payment if she suspended her IRA contribution for one year?

3. Deshawn Carter has just received his open-enrollment notification and has asked you to assess his disability insurance coverage. He currently has a long-term, any-occupation disability policy available through his employer that pays a benefit of 80% of his $85,000 gross annual income. Deshawn has previously chosen to have his premiums deducted from his salary on a before-tax basis, and the premium dollars are not being added back into his taxable income. He has asked you to determine the net after-tax benefit he would receive should he become disabled under each of the following situations:

a. No changes are made to his policy.

b. He elects to have the pretax dollars used to pay his policy premiums added back into his taxable income. (Remember to remind Deshawn this is an irrevocable decision)

c. His employer has offered to pay 50% of the premium on his behalf, and Deshawn would elect to pay the other half of the premium with after-tax dollars. (Remember to address with Deshawn how the income tax impact of this election will change his net benefit over the next several years, assuming his salary remains static.)

Quantitative/Analytical Mini-Case Problems 1. Ambra is age 50 on a...