Template:Disability Insurance Calculator Exercise Answer Key

From Planipedia

 

Question:

One of your clients (with existing insurance policies) are planning to purchase some extra disability insurance for the spouse. Given that they would like to replace 70% of income until the targeted age of retirement, and they wanted to protect their funds from the expenses below, how much disability insurance would they have to purchase at an assumed after-tax rate of return of 5.0%? 6.0%? 7.0%?

• Home Renovations (Wheelchair Ramp): {{{Home Renovations}}}
• Nanny for One Year: {{{Nanny for One Year}}}
• Mortgage Pay Down: {{{Mortgage Pay Down}}}

Save the scenario after calculation.

Answer:

After selecting your chosen clients from the Client Search screen, use the Calculators drop-down menu to proceed directly to 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. However, there is still some data entry to be completed:

1. The Percentage to Replace Salary field should be set to 70% as 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, so can be left at age 58.
3. The After Tax Rate of Return should be set to 6.0% so the results can be seen at the after tax rate of return one percent lower (5.0%) and one percent higher (7.0%).
4. They wanted to include three expenses, with individual costs of {{{Home Renovations}}}, {{{Mortgage Pay Down}}} and {{{Nanny for One Year}}}: 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 monthly.
6. Click Calculate at the bottom of the screen.
7. Click Save once the results have populated to save the scenario.