This case study series follows a young couple and their growing family; some of the changes they are faced with over the course of two decades, and some of the financial decisions they must make together. While the focus is on life insurance, there are other areas of our lives which can play an important role in our decisions related to personal finance. This case study series accounts for some of those possibilities.

Note: It will be helpful to read The Balancing Act ℠ – A Strategy For Success before proceeding with this article.

Starting Out – A Young Family

the balancing act case study 1Jeff (25) and Lisa (25) live in Salt Lake City, UT. Their daughter, Chloe, was born two years ago. Lisa had been working as a public-school teacher until Chloe was born. They decided that Lisa should be home with Chloe full-time, so Lisa resigned from her teaching position just after Chloe was born. Jeff had just graduated from the university and was recruited by a growing, local company. His income provides enough to support them. Lisa found a part-time job that allows her to work from home and bring in some additional income. Jeff and Lisa are shopping for a home now and getting ready to welcome a second child into their family.

The Situation (Now and Later)

After reading the article, The Balancing Act, they decide this is the strategy they want to implement for their life insurance needs. They estimate that all of Lisa’s income is available for a life insurance purchase, though they do not expect to spend that much.

• Jeff’s annual income is $48,000 ($4,000 per month).
• Lisa’s annual income is $6,000 ($500 per month).

They both agree that life insurance is a priority. Jeff currently has $200,000 of group life insurance through his employer’s group plan. Lisa also has life insurance coverage through Jeff’s group plan, but only $50,000.

Jeff and Lisa want to secure their own life insurance policies before they take on the added debt of a home mortgage. They recognize that Jeff’s employer-sponsored life insurance will not be available in the future if he decides to change employers, or starts his own business. Jeff wants to feel confident that he can take advantage of future career opportunities without losing the protection his family needs.

In their discussions, they both agree that Lisa could go back to teaching full-time if necessary; and they are grateful their family has this income opportunity. However, that would not be an ideal situation for their children while they are young. They both agree that Lisa should continue to have the financial option to be home, full-time, while the children are being raised.

They also agree that Jeff would need a lot of help with their young children if he were to be the surviving parent. Jeff has expressed that while he would want the ability to be home with their children, especially the first year, he would also feel the need to continue building his career.

Jeff’s Short-Term and Mid-Term Need

Jeff and Lisa go to the Simplis Life Insurance Calculator to determine Jeff’s current life insurance need.

• They agree that Lisa should have 15 years of Jeff’s income ($720,000) to raise their children.
• They also want their family to be debt free, especially the home, so their children always have a family home and feel secure (projected new mortgage and other debt = $225,000 according to
the Simplis Life Insurance Calculator).
• They want to provide some financial assistance to their children for higher education costs,
approximately 16 to 20 years in the future. They decide to include $15,000 per year, per child,
for four years each ($120,000).
• Finally, they agree that both of them should have a $100,000 final expenses Permanent Life
Insurance policy. (They do not include this in the overall calculation since they intend to
purchase a separate policy for this need, per The Balancing Act strategy).

Jeff’s Term Life Insurance need in summary:

• Income Replacement = $720,000
• Debt Payoff = $225,000
• Children’s Higher Education = $120,000

Jeff’s Total Short-Term and Mid-Term need:

• $1,065,000

They are both surprised by the amount of life insurance needed to provide for their family’s future
financial needs!

Jeff’s need is $1,065,000, and he is in excellent health. The Simplis Click ‘n Go Quoting tool rounds his need up to $1,100,000, and then Jeff uses the slider on the Simplis Life Insurance Quoter to adjust his coverage down by $200,000 to account for his employer’s group life insurance coverage, making his total need $900,000 ($1,100,000 – $200,000 = $900,000). Jeff is a non-smoker and wants to pay monthly. He feels a 20-year term policy is adequate to protect their family while the children are young.

• Jeff’s $900,000 20-year Term Life Insurance policy is $32.02 per month.

He submits his online Simplis application. That day a Simplis professional contacts Jeff to verify his
request. During the conversation, Jeff learns he can secure $1,000,000 on a 20-year term policy for
$34.56 per month; life insurance companies give a price break at $1,000,000 in coverage. Jeff decides to amend his application to $1,000,000. Together with his employer sponsored group coverage, Jeff will have more life insurance protection than his current need requires. Nevertheless, he realizes that his family is growing, and he will probably need more protection in the future. Also, the cost difference is very minimal.

Lisa’s Short-Term and Mid-Term Need

Lisa and Jeff go to the Simplis Life Insurance Calculator to determine Lisa’s current life insurance need.

• They agree that Jeff won’t need Lisa’s income, as it represents extra money right now. Lisa
clicks the box, “This doesn’t apply to me”, in the Income Replacement/Lifestyle Protection area
of the calculator, and that area collapses.
• Lisa wants their children to have the best care available while Jeff continues his career. She
enters their children’s ages (2 and 0) into the Simplis Calculator under “Full Time Parent/Family
Services Protection” and estimates $10,000 of annual cost for each child, totaling $360,000.
• They also want their family to be debt free, especially the home, so their children always have a family home and feel secure (projected new mortgage and other debt = $225,000 according to
the Simplis Life Insurance Calculator).
• They want to provide some financial assistance to their children for higher education costs,
approximately 16 to 20 years in the future. They decide to include $15,000 per year, per child,
for four years each ($120,000).
• Finally, they agree that both of them should have a $100,000 final expenses Permanent Life
Insurance policy. (They do not include this in the overall calculation since they intend to
purchase a separate policy for this need, per The Balancing Act strategy).

Lisa’s Term Life Insurance need in summary:

• Family Services Replacement = $360,000
• Debt Payoff = $225,000
• Children’s Higher Education = $120,000

Lisa’s Total Short-Term and Mid-Term need:

• $705,000

Lisa’s need is $705,000, and she is in excellent health. The Simplis Click ‘n Go Quoting tool rounds her need up to $750,000, and then Lisa uses the slider on the Simplis Life Insurance Quoter to adjust her coverage down by $50,000 to account for her group coverage through Jeff’s employer, making her total need $700,000 ($750,000 – $50,000 = $700,000). Lisa is a non-smoker and wants to pay monthly. She feels a 20-year term policy is adequate to protect their family while the children are young.

• Lisa’s $700,000 20-year Term Life Insurance policy is $21.28 per month.

She submits her online Simplis application. That day a Simplis professional contacts Lisa to verify her request.

Jeff’s and Lisa’s Long-Term Need – Final Expenses

Since Jeff and Lisa want to use The Balancing Act ℠ strategy for their life insurance needs, they also ask the Simplis professional about a permanent policy for each of them. They want to keep the cost to their budget reasonable, but they also want strong guarantees. After looking at a few options they decide to apply for a dividend paying Whole Life Insurance policy with a $100,000 death benefit.

• Jeff’s $100,000 guaranteed Permanent Life Insurance policy premium is $76.04 per month.
• Lisa’s $100,000 guaranteed Permanent Life Insurance policy premium is $68.73 per month.

What is the Goal of this Plan?

Jeff and Lisa need a lot of life insurance protection for their current financial obligations to their young family. They also have a good, reliable income.

• The large amount of Term Life Insurance protects their family against financial vulnerability due to an unexpected death.
• The small amount of Permanent Life Insurance will provide for any final expenses, whether
death occurs when they are young, or when they are elderly.
• After 20 years, the Permanent Life Insurance will have paid for itself.
• After 30 years, the Permanent Life Insurance will have also paid the premium for both Term Life Insurance policies.

Their family will have the protection they need, and eventually Jeff and Lisa will be able to recapture ALL of their premium. Of course, they plan to keep the permanent policies for the rest of their lives, but they feel good about having the option to cash out later in life and receive all of their money back.

Underwriting

Jeff and Lisa were able to secure their life insurance needs within 10 days of their online Simplis
application. They both qualified for an accelerated underwriting program, with the help of their Simplis professional, so they were not required to provide blood and urine samples; nor were they required to have a medical exam.

The Decision-Making Process

It was tempting for Jeff and Lisa to slip into the “cheap” trap and purchase only Term Life Insurance.
They were able to avoid it mostly because they have a strong and reliable income. They also feel
dedicated to the financial principal of always getting something of value from an important purchase.
Since they are able to afford the premium and they believe it is sustainable, they decided to design their life insurance needs based upon the principals outlined in The Balancing Act ℠ – A Strategy for Success, and include a Permanent Life Insurance policy.

Had there been any serious budget doubts, they could have purchased only Term Life Insurance and that would have satisfied their young family’s need. For them, the most important priority was to
provide enough protection. The ability to recapture the cost of their premium in the future was
secondary in their decision-making process.

Budget and Long-Term Cost

With their current life insurance design, both Jeff and Lisa will eventually experience a financial gain
from their life insurance plan. At the beginning, they decided $500 per month is available within their
current budget, though they both agreed they would not spend that much for life insurance. After they used the Simplis Life Insurance Calculator to determine their individual needs, and then used the Simplis Life Insurance Quoter to shop for the best rates, they were able to determine the cost for each of their Term Life Insurance policies.

• Jeff’s $1,000,000 Term Life Insurance policy premium = $34.56 per month.
• Lisa’s $700,000 Term Life Insurance policy premium = $21.28 per month.
• Combined total payment for their Term Life Insurance need = $55.84 per month.

After they spoke with a Simplis professional, they were able to determine the payments for a $100,000 guaranteed Permanent Life Insurance policy for each of them.

• Jeff’s $100,000 guaranteed Permanent Life Insurance policy premium = $76.04 per month.
• Lisa’s $100,000 guaranteed Permanent Life Insurance policy premium = $68.73 per month.
• Combined total payment for their guaranteed Permanent Life Insurance policies = $144.77 per
month.

What is their total monthly budget commitment to provide the protection their family needs, while at
the same time recapturing their premium payments in the future?

• Grand total budget commitment for their entire life insurance design = $200.61 per month.
• Total amount of equity in their life insurance policies after 20 years = $37,365.00

After 20 years they will have already recaptured all of their Permanent Life Insurance premium
payments, and they will then begin to recapture the premium paid for their Term Life Insurance.

$200.61 per month seems like a lot of money to spend for life insurance. Yet, when we peer into the
future it begins to make sense why someone would be attracted to this approach. The recaptured
premium is an attractive benefit, but there’s a lot more to it than that.

Let’s fast-forward 10 years and see what Jeff and Lisa are doing: Case Study – The Balancing Act ℠ – Part 2

Questions? We have answers. Contact a Simplis professional today, online or (888) 385-1711.