The Johnson Family Life and Insurance Planning Portfolio

Professor Marco

Family ProfileThe Johnson Family

Family Members: Date of Birth:Alex: Age 41 (June 19, 1973)Krystal: Age 40 (June 27, 1974)Jasmine: Age 17 (May 19, 1997)David: Age 5 (February 14, 2009)

Family History:

Alex and Krystal met in a web design class while attending University of Virginia. They quickly fell in

love bonding over a web design project for class. Alex majored in Finance with a minor in Economics. Krystal

majored in Management and Marketing. Alex and Krystal graduated from University of Virginia in summer of

1996. The couple was so in love that they went to the Justice of the Peace and got married.

The Johnsons started a small web design business from their apartment called Design with Love.

Krystal was in charge of the day to day operations, while Alex decided to make an investment in himself and go

back to school and obtain his Master’s Degree from Virginia Commonwealth University.  

In May 19, 1997, the Johnsons welcomed a beautiful 6 pound, baby girl, named Jasmine.   Krystal

decided to be a stay at home mom and manage her web design company, which gave her the flexibility to grow.

The company is now worth $300,000. Recently, Krystal hired her sister, Amanda Meyers, to be her assistant.

Krystal takes a base salary of $25,000 a year. Her income from the business allows her to create a college

savings account. Alex is now working as a Tax Specialist for Dominion Resources pulling in a base salary of

$75,000 per year, with benefits. The Johnsons added a new member to the family, on February 14th. The

couple had a healthy, baby boy, named David.

Jasmine is in high school with a 4.0 grade point average and is a member of many group organizations

such as Future Business Leaders of America and Math & Science Club. She works with different charitable

groups such as Girls Scouts of America and tutoring kids at church the family attends every Sunday. David is

enrolled in elementary school, where he is doing extremely well in all of his classes. He is an active member of

the basketball, football, and soccer teams at his school.  

Physically, the Johnson family is in great health condition. Alex is a 41 year old man, 6 foot 2 inches

tall and has a weight of 175 pounds, who doesn’t drink or smoke. Krystal is a 40 year old woman, she is 5 foot

6 inches tall and weighs about 135 pounds, who doesn’t drink or smoke. The family enjoys walking together

with their children and being active in sports and other things. She is addicted to fitness and workout twice

every day. Most importantly, the family makes it a priority to eat healthy. They have no history of any

illnesses or disabilities. Krystal, Alex and their children are mentally, physically, emotionally and spiritually

engaged in the fullness of life.

Bank Accounts and Assets for Alex and Krystal: (As of January 31, 2014)

Assets Checking Account: $10,000.00Savings Account: $30,000.00College Savings Account: $50,000.00Brokerage Account Valued at: $110,000.00

Monthly Income:

Actual Pay Check Results for AlexBi-monthly Gross Pay $3,125.00Federal Withholding $254.69Social Security $193.75Medicare $45.31Virginia Tax $161.77Net Pay $2,469.48

Calculation Based on:Tax Year 2014Gross Pay $75,000Pay Frequency Bi-monthlyFiling Status MarriedFederal Exemptions 4

Actual Pay Check Results for KrystalBi-monthly Gross Pay $1,041.67Federal Withholding $0.00Social Security $64.58Medicare $15.10Virginia Tax $41.98Net Pay $920.01

Calculation Based on:Tax Year 2014Gross Pay $25,000Pay Frequency Bi-monthlyFiling Status MarriedFederal Exemptions 4

Automobiles

The Johnson’s have three cars in their household and they are all fully owned. Alex, Krystal, and Jasmine have

no speeding tickets in the last 5 years. Alex drives a 2010 Black Cadillac Escalade with about 60,000 miles.

There are no monthly payments as he owns the vehicle and has no driving record.

Krystal primarily drives a 2009 white Toyota Sienna with about 40,000 miles. There is no monthly payment as

she owns the vehicle. Being the cautious person she is, she likes to brag about her clean driving record.

Alex and Krystal brought Jasmine for her birthday a 2002 Honda Accord for which they paid $9,000.00 for.

They own the vehicle, however a contractual agreement exists between parents and daughter which she has to

maintain her grade point average. The daughter makes excellent grades in high school and her GPA is 4.0 and is

very involved in school and community activities.

House

The Johnson have been saving money to put towards a beautiful home. Four years ago (2011), The

Johnson upgraded to a new brick house in the West End. The House was built in 2010. The purchase price was

$250,000.00, they put down 20% of the $250,000 which was $50,000.00 @ 3.75% rate and an APR rate of

3.77%. The Johnson took a loan with Capital One Home Loans with a 30 year fixed for the amount of

$200,000.00.

Payments: $927.00 a month and $512.00 in fees for a total of 1439.00 a month.

Features:● 3,300 square feet● 4 bedrooms● 3.5 Bathrooms ● Asphalt Shingle Roof● Brick exterior ● Wood-Burning Fireplace● Up-to-date appliances● Security System and Fire Alarms

Needs Assessment

Alex and Krystal must determine how much life insurance is needed should one or both of them die.

Should Alex, Krystal or for heaven’s sake, both of them should die, they would want the surviving spouse and

their children to be able to survive and maintain their accustomed lifestyle. Both parents agree that the most

important thing in life is education. So, they have decided that they would need a life insurance plan that will

make it possible for both children to matriculate at a college or university of their choice. Therefore, their life

insurance policies must provide enough security and money for the children to maintain a moderate lifestyle

without suffering any burdens or limitations.

Death is not an easy thing to think about, but it is a reality that must be considered especially when you

care so deeply about your children. In order achieve this goal and relieve some pressure of the surviving

spouse, Alex and Krystal want to make sure that most or all of their debts are paid-off, which includes their

mortgage. If both parents should become deceased, Alex and Krystal wants to make sure that their children’s

caregiver will have no financial worries in taking care of their children’s needs.

A person’s human life value can depend on many factors of that person’s life such as future income

levels, taxes, education, training, disability, illness and periods of unemployment, and numerous number of

things. Alex Johnson has calculated his Human Life Value using a formula for PV Future Earnings, which

includes current annual after-tax earnings, the projected rate of growth of earnings, the future working lifetime,

and an after-tax discount rate. His human life value is $973,706.08. If you round up, it will be roughly one

million dollars after 24 years.

The Johnson’s have to perform an Insurance Needs Analysis one for the husband which makes $75,000

per year and another one for the wife which takes a salary of $25,000 a year. Since the husband brings in more

money a year, he needs a higher life insurance policy then his wife.

The average cost of a funeral in North America is approximately $10,000. This price includes the

services at the funeral home, burial in a cemetery, and the installation of a headstone; but, if you want a nice

headstone you have to pay more. The final expenses would cover burial expenses, an emergency fund,

mortgage fund, taxes payable, and education expenses for both of the children. The Johnson’s emergency fund

is set up for any emergency that the family may endure. The mortgage fund will be used to pay off their home

so that will be one less bill to worry about. The final cash needed, which is most important to the parents, is to

pay for their children’s education. The family knows education will increase in the future so the family wants at

least $100,000 per child. They know based on the values they install in both Jasmine and David that they will

get scholarships and grants for school.

Alex and Krystal calculated their monthly expenses they would likely have if one of them were to die to

determine how much the family will need by subtracting the wages that the surviving spouse would still bring

home to determine their total capital needs. Also, the family wants a surplus of money left over for

emergencies.

The final and last step on their Insurance Needs Analysis is to figure out their capital assets. Alex and

Krystal have a combined savings account totaling $30,000, a college savings account totaling $50,000, and

currently $10,000 in their combine checking account. They have a Brokerage account valued at $110,000 from

years of investing in a retirement plan. Finally, they have to determine the NPV of after-tax Social Security

survivor benefits, which is determine by using an online calculator provided by Social Security Administration.

http://www.ssa.gov/cgi-bin/benefit6.cgi

The Johnson’s needs assessment allows them to see roughly how much life insurance they need if Alex

pass away. For the liquidating capital they estimate they need roughly about $1,530,172 and if we round up

roughly about $1.4 million. For the preserving capital they estimate roughly about $2 million. In the event of

Alex’s death, the family will need a death benefit of about $2 million dollars in order to obtain the family goals

for their children and maintain their lifestyle.

Krystal Johnson has calculated her Human Life Value using a formula for PV Future Earnings, which

includes current annual after-tax earnings, the projected rate of growth of earnings, the future working lifetime,

and an after-tax discount rate. Her human life value is $372,626.13. If you round up, it will be roughly four

hundred thousand dollars after 25 years.

Krystal needs to have a life insurance policy in the event she dies and her husband will be financially

responsible to maintain the household and make sure that the children attend college. As you can see, currently

Alex is the bread winner of the family and he will still have enough money to support the kids, so Krystal can

get a small insurance policy. So for the current cash needs will be the same as Alex, which is her final expenses

will be $20,000, Mortgage Funds will be $200,000 to pay off the mortgage so her husband has one less thing to

worry about, creating an emergency fund of $60,000, and most importantly, create educational expenses of

$200,000 (100K per child) to make sure the kids have a good education.

Life Insurance for The Johnson’s

Life insurance is an essential part of our existence. Oftentimes, we do not think life insurance is

necessary until death occurs. As we grow, build families, and accrue expenses, thoughts of protecting our loved

ones after death, becomes a reality. Mr. Alex Johnson’s choice to acquire life insurance was based on the

financial support he provides for his family, which includes his wife, daughter, and his son. Currently, his

family has many expenses, such as monthly mortgage payment, providing maintenance for two family-owned

cars, other insurance payments, the costs of rearing two kids including the high cost of preparing for college.

The Johnson family is risk averse. The definition of Risk Averse is a person who dislikes risk and will take

minimum risk choices. Therefore, they need to address the risk of losing either one of their parents, Alex or

Krystal, with a life insurance product that will best address their needs and work with the Johnson’s budget.

Alex’s policy has to be larger than Krystal’s policy because Alex is the breadwinner of the family, with a base

salary of $75,000 a year. The following breakdown represents the estimated coverage the Johnsons’ would

need if Alex passed away:

Final Expenses in the event of One Parents Death: $20,000.00Emergency Fund: $60,000.00Mortgage Fund: $200,000.00Taxes Payable: $3,000.00Education Expenses (roughly $100K per child): $100,000.00Total Cash Needed: $483,000.00

(The information above comes from the Insurance Needs Analysis Worksheet)

Liquidating Capital (based on if Alex passed away):

The liquidating capital method in the Insurance Needs Analysis for if Alex passed away and leaving

Krystal to deal with the financial responsibility until the age of 85, the amount needed is $1,530,172. We want

to make sure the family has enough money so we rounded up that amount to $1,600,000 to account for any

unexpected needs and emergencies. This amount would be needed to cover the family expenses for the

surviving spouse until the age expectancy of 44.60, thus rounded this to 45 years from the Life Expectancy

Calculator from the Social Security website. http://www.socialsecurity.gov/cgi-bin/longevity.cgi

A term life insurance policy will help guarantee your family a death benefit if you suddenly pass away

while the policy is still in force. This will insure that your family will not be stress out paying off debts and

leaving them financially secure. They decided to look at State Farm which has great ratings from A.M Best

rating of A++, a Moody’s rating of Aa1, Standard & Poor rating of AA, and Fitch rating is AA. How does this

policy works? With term life insurance has an initial premium at a guaranteed level for the terms of 10, 20, 30

year terms. Alex can continue the coverage beyond the 10, 20, 30 year level premium on an annually renewable

to age 95 years. His premiums will increase every year, but it will never exceed the maximum premium stated

in the policy. A tax-free death benefit, which means that no matter how large the benefit is, passes to you

beneficiaries generally will be income tax-free. The quote for State Farm Term Life Insurance for a 30 year

term policy for Alex is: 30 year term policy for $1,600,000.00 will be $300.83 a month, or $3,458.00 annually.

Mr. Johnson is thinking about additional add-ons to his term insurance policy. A children’s rider

provides a temporary insurance for any child up to the earlier of the age 25 or until Alex turns age 65. Alex is

considers adding children’s rider for the maximum allowed $20,000 per child for an additional charge of $8.70

a month, or $100 annually. A children’s rider can provide a temporary insurance for any child up to the earlier

of the age 25 or until Alex turns age 65. State Farm allows Alex to purchase up to five times the amount of a

children’s rider coverage on when the child turns age 18 years of age. Then, the rider can be converted into a

permanent insurance policy for an amount up to five times coverage when the child turns age 25 years of age.

This will be a great idea since his daughter Jasmine will be going to college very soon. Now, the State Farm

quote for a 30 year term policy for Alex with a Children’s Rider for $20,000 per child: 30 year term policy for

$1,600,000.00 and a Children’s Rider for $20,000.00 per child, will be $309.53 a month, or $3558.00 annually.

Preserving Capital (based on if Alex passed away):

Preserving capital will require substantially larger amount than the liquidating capital because

liquidating is during the survivors’ remaining lifetime, thus requiring a much higher amount of insurance. The

preserving capital method in the Insurance Needs Analysis if Alex passed away and leaving Krystal to deal with

the financial responsibility, the amount needed is $1,905,949. We want to make sure the family will have

enough money to account for any unexpected needs and emergencies, so we rounded up to $2,000,000. This

amount suggests if the living spouse lives off of the interest. For a 30 year term from State Farm for the amount

of $2,000,000 will be $391.00 and if Alex chooses to have a Children’s Rider, the payments will increased by

$8.07 monthly, or $100.00 annually.

Also, Alex realizes that he can add his wife as an addition Insured Select Term Ride – 30 year rider, this

means for an additional $62.65 a month, or $720.00 annually, his wife can have coverage for $500,000. This

rider allows for temporary insurance coverage for another person, the premiums are at a level for 30 years, and

coverage will continue beyond level period on an annual renewable basis up to age 95. Krystal’s main focus is

providing as much coverage for her two amazing and gifted children so they can achieve higher educational

goals and maintain flexibility of their lives.

Krystal’s Life Insurance quotes from Prudential Insurance

Krystal Johnson wants more coverage and some additional insurance than being added to her husband’s

insurance plan as a rider. Her main focus is education so that her children can have a great future. Krystal is

considering getting term life insurance from Prudential Insurance. Their ratings are A+ for A.M Best rating,

AA- for Standard & Poor’s, A1 for Moody’s, and an A+ for Fitch. The 30 year term policy is for $500,000 and

the monthly payments are $111.49.with a waiver of Premium Benefit, Accidental Death Benefit, Children’s

Protection Rider, and Living Needs Benefit.

The waiver of premium benefit allows, for in the event she becomes disabled, prior to the anniversary of

the policy or after her 60th birthday, her premiums will be waived just as long as Krystal remains disabled. No

waiver on or after her 60th birthday. An accidental death benefit will pay the benefactor an additional death

benefit for the face value, which has a maximum of $500,000 if the death is accidental. Krystal policy includes

a Living Needs Benefit at no extra charge. Under this benefit, the policy owner (Krystal) can receive a portion

of the death benefit prior to death if confined to a nursing home six consecutive months or is expected to be

confined there, or if terminally sick and only has a expectancy to live for six months or even less. Also, she has

a Children’s Protection Rider as her husband for the maximum allowed, which is more than her husband’s

$20,000; Krystal children’s rider is the maximum allowed is $25,000. This rider includes level term insurance

for the life of each child, which can be converted when the child’s 18th, 22nd, or 25th birthday, as long as Krystal

keeps the insurance in effect. The rider can also be converted to a permanent insurance policy when the

coverage expires.

In conclusion, after careful assessment of both Alex and Krystal’s goals and helping to maintain their

children’s lifestyle, The State Farm Life Insurance policy for Alex, in the event he should pass away, the wife

can receive $2,000,000 million dollars to pay off the mortgages, pay for the kids’ tuition for college, and set-up

an emergency fund. The Prudential Life Insurance for Krystal, in the event she should pass away, the husband

can make sure that his wife’s dreams for the kids come true. The Johnson will still need this insurance in the

future with the raise of tuition for college and other needs to think about, Alex and Krystal will keep their

policies in the future. Always remember, no amount of money will ever take the place of a parents’ love

towards their children’s happiness.

Insurance for Krystal Johnson business … “Design with Love”

Insurance Provider: HISCOX Inc.

Better Business Bureau Rating: A+

A.M. Best Rating: A

Standard & Poor’s Rating: A+

Fitch Rating: AA-

In order to run a successful business and keep a good reputation with her customers, Krystal realizes that

she needs to have insurance for her web design company. Krystal was recommended by her Geico agent to try-

out this very well-known and trustworthy company called HISCOX. HISCOX is a small business insurance

company that provides general liability insurance which includes Bodily injury, Damage to third party property,

Personal injury, Advertising injury, Electronic data liability, Medical expenses, Worldwide insurance coverage,

Defense costs, Actions of your full-time employees and temporary staff, and Supplemental payments.

According to the Better Business Bureau, HISCOX has been an Accredited Business since 3/2/2012 and is rated

A+ for their great customer service. She also just hired her sister as temporary employee to assist her with the

day to day duties. Krystal needs this insurance because her business is growing and she has a long list of clients

so she has to protect her family business so it remains in the Johnson Family forever. The Aggregate limit is

$1,000,000 and the Deductible is $500. The aggregate limit of liability is an insurance contract that provision

limiting the maximum liability of an insurer for a series of losses in a given time period.

The policy covers in the event of negligence, will be awarded damages and defense cost up to the policy

limit, covers $200,000 worth of software copyrights infringement coverage, services delivered by all staff,

including any type of temporary employees, libel and slander claims made on the services of the business, and

punitive damages covered up to $250,000 where allowed by law. The Occurrence limit is $1,000,000 and her

deductible is $0. Occurrence limit is liability insurance; the insurer will pay for all claims resulting from a

single occurrence, no matter how many people are injured, how much property is damaged, or how many

different claimants may make claims. The policy covers damages to someone else’s property, damages to rental

properties (such as fire damage), injuries to a third party which includes related medical expenses, actions to

any of your staff members, claims of personal injuries including slander and/or libel, and the policy also covers

electronic data liability arising from property damage up to $25,000. Here is an example of what this company

covers: Personal injury - Your employee is on break and away from the office. He or she talks about a client in

a false and unflattering matter to the manager or employee of a local coffee shop. It turns out that someone at

the coffee shop is related to your client. Now the client has found out and wants to sue you for slander.

HISCOX will cover the subsequent claim, up to the limits of the liability, and pay for an attorney to defend the

company, if necessary. Her monthly payments is $62.50 a month or $750.00 a year with a 5 % discount

because she setup the insurance coverage early. The payments are calculated in her family budget under

business expense.

Survivorship Life Insurance for the Johnson Family

Survivorship Life Insurance is a life insurance policy, which is often called, last-to-die life insurance.

Typically, this policy is for a couple or a traditional husband and wife team. This policy pays a death benefit, if

and only when, the last of two people dies. The survivorship life plan traditional is either a whole life or a

universal life policy, but most companies offer this insurance as a term survivorship life insurance policy.

Survivorship plan is treated the same as other types of life insurance policies for income tax purposes and death

benefits are paid tax free.

The first reason for getting this policy is to provide estate liquidity at the second death of a married

couple. A survivorship life plan is mostly inquired when a substantial estate will be made of the marital

deduction. Second reason is to protect the careers of both people. If both parents should pass, loss of income

will leave the dependents with no financial support. This insurance provides a relatively low cost method of

protecting your love ones against losing two incomes. Third reason is providing key person business insurance,

loss of a single employee in a key area may present some inconvenience or problems for the company.

Companies usually take proper protocol to cross-train employees to insure that their business can still be

managed and profitable to minimize the risk of losing a key employee. Also, this policy can be used to help

fund charitable bequests by providing the resources to fund charitable bequests after the death of the husband

and wife.

The advantages of Survivorship Life Insurance is that the premiums are much lower than equivalent

coverage in two different separate polices and this plan has a lower taxable “economic benefit” in a split dollar

plans. Some of the disadvantages of this plan is no benefits will be paid at the death of the first (wife or

husband) spouse without having a special rider. With term and permanent plans, there are risks that premiums

can increase excessively if the dividends are lower than projected or term insurance rates rises.

The Johnson’s are looking into getting as much insurance protection as possible that fits into their

budget. Alex and Krystal contacted Voya Financial to gather information and quotes on survivorship life

insurance. Voya Financial is offering the Johnsons’ Accumulator Survivorship Universal Life, which safeguard

both lives and investments by provide potential cash value growth in the policy. This policy will help boost

their cash value growth potential to help with estate planning and transferring the Johnson’s wealth to their

heirs.

The key features for Voya Financial in this policy are: guaranteed to credit your policy no less than a 3%

minimum interest rate, no surrender charges, policy loans available so you can borrow from your policy, strong

early cash value growth, Income tax-free death benefit paid to beneficiaries after second person dies, and helps

money inside your policy called cash value grow tax-deferred (https://voya.com/products/voya-strategic-

accumulator-survivorship-universal-life#!overview). The fees and policy charges are very suitable for the

Johnson’s budget without going below 5% of their budget, with policy starting as low as $30 a month.

The Internal Revenue Service website states that Estate Taxes is a tax on the right to transfer your assets

and/or property at the time of your death. It takes in account everything you own or interests at the time of

death. Fair Market value is used to calculate, but it’s not necessarily what you may have paid for them or the

value they were when you acquired them, the total of all these items or assets is called your “Gross Estate”.

This may include cash, insurance policies, trusts, real estate, and other assets you may own. The family assets

should exceed $5,430,000 in 2015 according to Internal Revenue Service website in order for them to pay an

estate tax. However, the Johnson’s business which is currently valued at $300,000, their insurances plans

combined is worth $2,200,000, and all other assets will not exceed the requirement the IRS states on

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estate-Tax , in the event of both Alex’s and

Krystal’s death. In 2006, The General Assembly voted to no longer have estate tax for people death that occur

on or after July 1, 2007 (http://www.tax.virginia.gov/content/estate).

As the business grow and the Johnson family assets increases, they will start thinking about obtaining

the survivorship life insurance from Voya Financial.