Template:Disability Insurance Calculator Case Study

From Planipedia

The Disability Insurance Calculator helps you to determine the total capital required in the event that one of your clients is unable to work. The calculator takes into account the client’s age, percentage of earned income that will need to be replaced and their current insurance coverage.

Example Problem One:

Your clients are concerned that the event of the spouse’s disability would cause financial instability and want to know the funds required to replace their income. They have told you that they would be like to replace 60% of the income until the age they would have retired, and they want to have {{{Medical Expenses}}} available in case there are medical expenses not covered by government programs, and {{{Home Renovations}}} for possible home renovations.

Solution Using the Disability Insurance Calculator:

In order to upload as much completed information as possible to the calculator, click the drop-down menu beside Scenario and choose the spouse’s Disability. Immediately, the following fields will have changed from default values, to data already entered on other screens: Current Age, Current Earned Income, Replace Income to Age, Inflation, Current Insurance Coverage, Lump Sum Benefits and Index Rate on Benefits.

1. The Percentage to Replace Salary field should be set to 60% as the clients indicated.
2. Even though the Replace Income to Age was uploaded from the Personal Information screen, we could still elect to change it. As a default, it plans to replace income until the retirement age of the disabled person. This may not always be the case – but for these clients it is correct.
3. The After Tax Rate of Return is a defaulted to the client’s inflation assumption plus 2.0%. Unless you wanted to override this value with a higher or lower assumption, this field can be left alone.
4. The clients wanted to include two expenses, with individual costs of {{{Medical Expenses}}} and {{{Home Renovations}}} – or {{{Combined Total}}} total. Set the Lump Sum Costs field to {{{Combined Total}}}.
5. The Lump Sum Benefits would include any insurance coverage that pays a certain amount immediately, as opposed to a monthly benefit. In this case, the Barbers have no such coverage, so the field can be left at the default of zero.
6. Click Calculate at the bottom of the screen.

To View the Disability Insurance Report:

Click on the View Report button to view a summary report of data input and calculated insurance coverage required.

Go to the exercise to test your knowledge on calculating the need for Disability Insurance coverage.