Question

PLEASE HELP ME! THUMBS UP WITH GREAT APPRECIATION!

You are to develop a risk management plan for the Pierce family. Your plan should incorporate insurance and non-insurance recommendations. Provide a complete explanation of your assumptions. Remember to make the work your own.

Case facts:

Joe, 37, self-employed carpenter, four employees, nets $60,000 per year

Anita, 37, part-time nurse, earns $30,000 per year

Children: Nathan (12), Isaac (10), Charlotte (6), Lydia (3)

Assets, in $

Personal

Cash   12,000

Mutual funds 8,000

IRAs 15,000

401(k)    28,000

Car    20,000

ATV   5,000

Boat   10,000

Personal property   95,000

Home 245,000

Business

Truck 30,000

Tools & materials 60,000

Liabilities

Credit cards   6,000

Car    15,000

Home    168,000

Step 1: Identify and evaluate the risks faced by this family. (1/2 page)

Step 2: Explain the non-insurance risk management techniques you recommend for this family. (1/2 page)

Step 3: Recommend and explain appropriate insurance coverage for this family. (1/2 page)

Step 4: Explain the retirement planning options you would recommend for this family. (1/2 page)

Step 5: Explain the estate planning options you would recommend for this family. (1/2 page)

Answer 1

1] Joe being self employed carpenter with four employees is exposed to the risk of unstable earnings but fixed expenses in terms of salaries to be paid to the employees whereas Anita who is part-time nurse may lose job at any given point as its only temporary and three out of four children are assumed to be pursuing their schooling and younger one is ready to join the school, as the kids are expected to join higher studies in four years which will increase their academic fees, assuming that the kid does not perform well in the examinations which inturn results in failure to get a scholarship, certainly this family is exposed to financial risks as it has open liabilities in terms of home and car and parents being aged with any life insurance assuming that the medical and health related issues will be addressed by the Government free of cost. Cash in hand is exposed to risk of theft. Mutual funds are subject to Market risks and there is a possibility that the fund value shrink due to deteriorated performance of stocks in the market. Car and ATV are exposed to risk of damage due to accidents. Boat is exposed to the risk of sunk. Home is exposed to risk of damage due to natural calamities. Business truck is exposed to risk of damage due to accidents.

2] Cash in hand can be partly utilized to pay off the pending credit card bill and balance can be deposited in bank. Mutual funds can be switched over to Fixed deposits which ensures guaranteed returns with no risk. Car, ATV and Boat one has to maintain and drive with utmost care to order to avoid potential accidents and related damages to the mode of transport. Same care needs to be exhibited in case of business truck and tools. Coming to Kids academics, persuade kids to study well in order to get scholarships for further studies parallel to this one can also try for sponsorship.

3] Instead of Mutual funds, the investments can be made in Insured Investment funds wherein though the funds the exposed to market risks the amount invested is fully secured. Anti theft and insurance policy for car, ATV and Boat have to be in place to shield from unexpected incidents. Similar policies are to be taken for the business truck. Joe and Anita should also plan for a life insurance policy as in the event of unexpected scenarios the family not abandoned parallel to this they should also plan for retirement or a pension plan so that with lower premiums pay-outs as they start early one can expect fixed income in their old age.

4] SEP ERA is the best retirement plan for Self-employed people or small-business owners with few or no employees.Contribution up to 25% of compensation or net self-employment earnings.Again, net self-employment income is net profit less half of your self-employment taxes paid and your SEP contribution. No catch-up contribution.You can deduct the lesser of your contributions or 25% of net self-employment earnings or compensation on your tax return. Distributions in retirement are taxed as income.A SEP IRA is easier than a solo 401(k) to maintain — there’s a low administrative burden with limited paperwork and no annual reporting to the IRS and has similarly high contribution limits. Like the solo 401(k), SEP IRAs are flexible in that you do not have to contribute every year.Solo 401(k) for a business owner or self-employed person with no employees (except spouse). Joe can’t contribute to a solo 401(k) as he has employees. But he can hire his spouse so that she can also contribute to the plan. Your spouse can contribute up to the standard employee 401(k) contribution limit, plus you can add in the employer contributions, for up to an additional $56,000 total, plus catch-up contribution, if eligible. This potentially doubles what you can save as a couple.

5] Estate planning can help establish a platform you can fine-tune as your personal and financial situations change. Inventory all your assets.Life insurance may be even more important if you have a child with special-needs child or college tuition bills.Name a guardian for your children and a backup guardian, just in case when you write your will. A complete estate plan includes important legal directives like medical care directive and durable financial power of attorney. Review your beneficiaries -Check your retirement and insurance accounts. Retirement plans and insurance products usually have beneficiary designations that you need to keep track of and update as needed. Those beneficiary designations can outweigh what’s in a will.Name contingent beneficiaries. These backup beneficiaries are critical if your primary beneficiary dies before you do and you forget to update the primary beneficiary designation.Revisit your estate plan when your circumstances change, for better or for worse.