2. Family Profile
The Johnson Family
FamilyMembers: Date of Birth:
Alex:Age 41 (June 19, 1973)
Krystal:Age 40 (June 27, 1974)
Jasmine:Age 17 (May 19, 1997)
David:Age 5 (February14, 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
3. 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.
4. Bank Accounts and Assetsfor Alexand Krystal: (As ofJanuary 31, 2014)
Assets
CheckingAccount: $10,000.00
SavingsAccount: $30,000.00
College SavingsAccount: $50,000.00
Brokerage AccountValuedat:$110,000.00
MonthlyIncome:
Actual Pay Check Resultsfor Alex
Bi-monthly GrossPay $3,125.00
Federal Withholding $254.69
Social Security $193.75
Medicare $45.31
Virginia Tax $161.77
Net Pay $2,469.48
CalculationBased on:
Tax Year 2014
Gross Pay $75,000
Pay Frequency Bi-monthly
Filing Status Married
Federal Exemptions 4
Actual Pay Check Resultsfor Krystal
Bi-monthly GrossPay $1,041.67
Federal Withholding $0.00
Social Security $64.58
Medicare $15.10
Virginia Tax $41.98
Net Pay $920.01
CalculationBased on:
Tax Year 2014
Gross Pay $25,000
Pay Frequency Bi-monthly
Filing Status Married
Federal Exemptions 4
5. 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.
6. 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
7. 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
8. 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,
9. 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.
10. 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 Expensesinthe eventof One ParentsDeath: $20,000.00
EmergencyFund: $60,000.00
Mortgage Fund: $200,000.00
TaxesPayable: $3,000.00
EducationExpenses(roughly$100K perchild): $100,000.00
Total CashNeeded: $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
11. 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 passedaway):
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
12. 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
13. 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 evertake the place of a parents’ love
towards their children’s happiness.
14. 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
15. 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.
16. 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
17. 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.
