Sally, age 35, is a Formula 1 driver. She is married to Mark, age 37, and they have 2 children, ages 2 and 4. Sally earns $150,000 annually. Sally and Mark mostly rely on Sally’s income, as
Mark has a low-income job, earning $45,000 annually.
Sally has cancer running in her family. Several of her family members had been diagnosed
with aggressive types of cancer, and the doctors have warned Sally that she is very likely to
have cancer one day.
Sally has two main concerns:
1- given her high-risk job and the high probability of getting into an accident, Sally is worried
that she might have an accident while doing her job, leading to her death or her disability, and
thus she is concerned about the future of her children.
2- Her second concern is cancer. She is worried that, although she has a high income, if she got
cancer she would not be able to continue with her job, and she would deplete any savings she
might have on treatment, and of course that cancer might kill her.
Currently, Sally has personal savings in the amount of $500,000. She owns several mutual
funds and individual stocks with a current market value of $155,000.
Sally wants her children to maintain their current life-style for at least 10 years after she dies.
She estimates that her children would be able to maintain their life-style with 70 percentage of
her annual income, in addition to whatever her husband earns.
Moreover, Sally wants to have some other funds available to her children when she dies. She
wants each of her children to have $100,000 to have a starter house of their own. In addition,
she wants to have $150,000 for each child for their education. Additionally, she wants her
children to have a further $50,000 for emergencies.
Sally estimates that her family will need at least $15,000 for funeral expenses, and another
$70,000 for other expenses that are needed immediately after she dies.
Given her family medical history, insurance companies are refusing to provide her with health
insurance, and thus she would have to rely on her own funds if she needed to pay for treatment.
Furthermore, since Sally does not have a health insurance that would cover any medical bills
for her cancer treatment if needed, she estimates that her family might need an additional
$100,000 when she dies to cover any unpaid medical bills.
For these concerns, Sally decided to purchase a life insurance policy.
She wants to use this life insurance to calm her concerns. Someone once told her that some life
insurance policies could provide her with protection against death, but also that she can use
such insurance policy as some kind of saving.
Given her high paying job, Sally does not need any sort of income from this insurance policy
while she is alive and well. She believes she will be capable of paying the costs for this life
insurance as long as she can. However, given cancer in her family, Sally believes that she
might, one day, not be able to pay the premium, or even might need to have access to large
amounts of funds.
Sally does not know what would happen when she eventually retires. So she wants to keep her
options open. However, by that age, her children would have grown up – they might be
successful where she would not worry about them, or they might not and thus she might still
need to have some protection to help them.
Overall, Sally wants a life insurance policy that provides her with the best insurance options
possible. She is willing to pay the high premiums. However, Sally will reject the policy if there
was anything in the policy that is not needed and cannot be justified to meet her needs.
-Question: Part 1
Identity what Sally would need in her life insurance policy (including, BUT NOT LIMITED TO,
the original face value of the policy, the type of life insurance, all settlement, non-forfeiture,
and dividends options (if any) that should be available to Sally, any riders that might be of
benefit). Provide an explanation or justification for each item you identify. Remember that
everything in an insurance policy will eventually affect the premium to be paid! You need to
provide Sally with the best insurance policy that would fit her needs but remember: Sally
will not accept anything in her policy that does not fit her needs and is not justifiable.