Brad tells you about his plans to upgrade his auto insurance. Specifically, he would like to add several types of coverage to his policy, such as family protection coverage and rental car coverage. Recall that Brad is 30 years old. Brad also has a driving record that contains several speeding tickets and two accidents (one of which was his fault). He realizes that adding coverage will increase the cost of his insurance. Therefore, he is thinking about switching insurance companies to a more inexpensive carrier. When you ask Brad whether he has tenant's insurance, it is obvious that Brad does not know what tenant's insurance is.
Brad mentions that he is generally happy with the group insurance benefits that are available to him through his employer. With respect to these benefits, Brad's greatest concern is making sure that he has adequate coverage in the event of a long-term disability. Luckily, Brad's coverage at work provides him with 90 percent replacement of his after-tax income. When you ask Brad about the definition of disability under his group plan, he has no idea what it might be.
Brad's group life insurance covers only one year of his salary, or $48 000. He is not sure if this is enough insurance and is trying to decide between additional term life insurance and permanent life insurance. Brad likes permanent life insurance, as he believes that the loan feature on that policy will give him an option to meet his liquidity needs.
1. Regarding Brad's auto insurance decision, comment on:
a. His plan to add different types of coverage to his auto insurance policy.
b. The associated costs of adding different types of coverage to his auto insurance policy.
c. Any resulting negative consequences of switching to a more inexpensive auto insurance company.
d. Any other factors Brad should consider before switching insurance companies.
2. Describe tenant's insurance to Brad. What determines whether tenant's insurance is appropriate for Brad?
3. Describe to Brad how he could benefit from an evaluation of the definition of disability in his group disability insurance policy. Is it likely that Brad has coverage for critical illness through his employer? What are the advantages of purchasing critical illness insurance that Brad should consider?
4. Concerning Brad's life insurance decision, comment on:
a. His need for life insurance.
b. Whether permanent life insurance is his best choice, if you think he needs life insurance.
c. His plan to use the whole life policy's loan feature as a means of maintaining liquidity.