Two years after Martin Marcotte’s mom had her fall, she died due to complications arising from her disability. Mrs. Lucille Marcotte left behind a small life insurance policy. The Marcottes were surprised at the immediate expenses right after his mom’s death. The policy did not even cover all of these expenses. This has forced the couple to take a second look at their life insurance coverage, given that their kids Paloma and Joel are 12 and 9 years old respectively. Martin’s current salary is $55,000, and he has a $100,000 policy from his employer. About 20 years before getting married he had taken out a $50,000 policy; however his wife Luz, on the other hand has no coverage through an employer, but does have a $25,000 policy that she had purchased about 15 years ago. In all the couple has $175000 coverage. The main concerns for the Marcottes at this point are, to make sure that the kids are going to be taken care of in case either one of them dies, or worse yet, both of them die. Beyond that, they would like to provide for funeral coverage, and use the cash value of their policies to leave some money for their kids as part of their inheritance. Currently though they are not in a financially sound situation, since Martin has started a new job, they have bought a new house, a new car, and Luz is not working full-time.

QUESTIONS

Estimate the life insurance requirement for the Marcottes using the Easy Method and the Nonworking Spouse Method.

Given that the Marcottes have specific goals they want to accomplish with their insurance policies, what would you recommend for them a term, or whole life policy?

What are some of the settlement options that the Marcottes can opt for?

Mr. Marcotte presently is 45 years old, and decides to get a $ 10,000 face amount, limited payment, participating policy. At the end of the 20 years the cash value is $5000. The total dividends during the 20 years are $1500. The Marcottes can earn about 8% in a stock mutual fund if they decide to forgo the policy and use the premiums to invest in a stock fund. Premiums are running about $200 a year, $4000 for the duration of 20 years. What is the net cost of the policy to the Marcottes?

If the time value of money is ignored for the premiums payments, what is the net payout on the policy? What should the Marcottes keep in mind before purchasing the policy from an agent?