Personal Financial Planning 13th Edition by Lawrence Gitman,Michael Joehnk,Randy Billingsley

Exercise 24

Roberto Gomez and his wife, Juanita, have been married for two years and have a 1-year-old son. They live in Chicago, where Roberto works for Engineering Designers. He earns $3,200 per month, of which he takes home $2,300. As an employee of Engineering Designers, he and his family are entitled to receive the benefits provided by the company's group health insurance policy. In addition to major medical coverage, the policy provides a monthly disability income benefit amounting to 20 percent of the employee's average monthly take-home pay for the most recent 12 months prior to incurring the disability. ( Note: Roberto's average monthly take-home pay for the most recent year is equal to his current monthly take-home pay.) In case of complete disability, Roberto would also be eligible for Social Security payments of $700 per month.
Juanita is also employed. She earns $700 per month after taxes by working part-time at a nearby grocery store. As a part-time employee, the store gives her no benefits. Should Roberto become disabled, Juanita would continue to work at her part-time job. If she became disabled, Social Security would provide monthly income of $400. Roberto and Juanita spend 90 percent of their combined take-home pay to meet their bills and provide for a variety of necessary items. They use the remaining 10 percent to fulfill their entertainment and savings goals.
Critical Thinking Questions
1. How much, if any, additional disability income insurance does Roberto require to ensure adequate protection against his becoming completely disabled Use Worksheet 9.2 to assess his needs.
2. Does Juanita need any disability income coverage Explain.
3. What specific recommendations regarding disability income insurance would you give Roberto and Juanita to provide adequate protection for themselves and their child
(Reference Worksheet 9.2)