Chapter 9 Financial Planning Exercise 7

Calculating need for disability income insurance

Use Worksheet 9.2. Lorenzo Ricci, a 38-year-old computer programmer, earns $76,000 a year. His monthly take-home pay is $3,800. His wife, Siena, works part-time at their children's elementary school but receives no benefits. Under state law, Lorenzos employer contributes to a workers' compensation insurance fund that would provide $1,500 per month for six months if he were disabled and unable to work.

a. Use Worksheet 9.2 to calculate Lorenzos disability insurance needs assuming that he won't qualify for Medicare under his Social Security benefits. Round your answer to the nearest whole.

$ _____________

b. Based on your answer in part a, what would you advise Lorenzo about his need for additional disability income insurance? Discuss the type and size of disability income insurance coverage that he should consider, including possible provisions that he might want to include. What other factors should he take into account if he decides to purchase a policy?

_____________