The Porter’sRisk Management and Insurance

Portfolio

Group 15

Page 1 of 19

Table of ContentsFamily Profile 3-4

Hypothetical Insurance Claims 5-6

Monthly Budget Analysis 7-8

Homeowner’s Insurance (Home Risk) 9

Auto Insurance (Automobile Risk) 10-11

Life Insurance (Mortality Risk) 12-13

Health Insurance (Accident and Illness Risk) 14

Short Term Disability Insurance (Accident and Illness Risk) 15

Long Term Disability Insurance (Accident and Illness Risk) 15-16

Long Term Care Insurance (Long Term Care Risk) 17

Retirement Plan (Longevity Risk) 18-19

Page 2 of 19

Family Members:Alex: Age 41 Krystal: Age 40 Alisa: Age 17 Allen: Age 12 Ryan: Age 5

Family History:Alex and Krystal met while attending the University of Virginia. Alex majored in finance with a minor in economics while Krystal majored in management but always had a particular affinity for web page development. One year after graduating from UVA, the couple got married and had a child name Alisa in 1997; their lives would change forever. In debt from student loans, Alex realized in order to support a growing family and increase his salary, he should go to grad school to get an MBA, and so he enrolled at VCU. Krystal was a stay at home mom and had a small, one person web development company, which gave her the flexibility the Porters desperately needed. Fast forward 16 years to 2014. Alex is now an EVP for Dominion Resources pulling in a base salary of $175,000 per year, Krystal has grown her business into a regionally recognized web development, branding, and advertising specialist and averages about 50,000 per year, working part time. Her income is sporadic and is generally used for day to day purchases, special occasions, and building savings/college funds. Two more kids have been born to the Porters, 12 year old Allen and 5 year old Ryan, who has autism but can still function in school and maintain a normal childhood by taking medicine. The family has a nice house in the West End and has maintained excellent credit for the past 15 years.

Automobiles Alex rides smooth in his new 2015 Gray Lexus LX he just purchased last month for $86,000.00. He put down $25,000 and financed the remaining $61,000 for a 72 month term at 2.39% resulting in a monthly payment of $910.26 per month. Although a courteous driver by all accounts, Alex tends to be pre-occupied by routinely attending conference calls while commuting. Last year he receive two speeding tickets, the first speeding ticket was in April 1, 2000 was removed from his record because he successfully completed a driver’s improvement class, the second speeding ticket was on June 19, 2009 and he pled guilty to speeding 72 in a 55. Alex paid a fine to the courts.

Krystal primarily drives a 2011 white Toyota Sienna with about 40,000 miles. There is no monthly payment as she owns the vehicle. Being the cautious person she is, she likes to brag about her clean driving record.

Alex and Krystal brought Alisa for her birthday a 2009 Honda Accord for which they paid $11,000.00 for. They own the vehicle, however a contractual agreement exists between parents and daughter. The daughter makes excellent grades in high school and her GPA is 4.0 and is very involved in school and community activities.

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House

Three years ago, the Porters upgraded to a new brick house in the West End. The purchase price was $480,000.00, they put down $96,000.00 @ 3.55%Features:

3,300 square feet 5 bedrooms 3.5 Bathrooms Brick exterior Wood-Burning Fireplace Up-to-date appliances Security System and Fire Alarms

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Hypothetical Insurance Claims

Hypothetical Situation 1 (Auto Insurance)

While Mr. Porter was on his way to work on a snowy morning he lost control of his Lexus, swerved into oncoming traffic and ended up side swiping two vehicles, disabling all three automobiles involved. During the investigation, it was learned that Mr. Porter was on a conference call with colleagues. The tally of the monetary damage is as follows:

Vehicle 1- one occupant who sustained a bruised left side, and claimed neck and back pain. Damage to the car totaled to $5,230.45 and medical payments of $2,500

Vehicle 2- one occupant who sustained a broken arm and had to have surgery. Damage to the car totaled $13,000 and was deemed a total loss and medical payments of $16,000

Vehicle 3 (Mr. Porters) though not injured, his Lexus needed costly repairs in the amount $12,000. He also needed a rental, which

The occupants in both vehicles filed a law suit for negligence due to Mr. Porter being on the cell phone. They were awarded the following amounts for pain and suffering. Occupant 1 $25,000 and occupant 2 $100,000.

Part A of the policy will cover the following:

Vehicle 1 the $5,230.45 to fix the car and the $2,500 in medical costs Vehicle 2 the $13,000.00 for the totaled car and the $16,000 in medical costs The defense of Mr. Porter Occupant 1 lawsuit $25,000 Occupant 2 lawsuit $100,000

As a result of the incident, the Porter’s automobile insurance increased by about $50.00 per month.

Hypothetical Situation 2 (Homeowners)

Hurricane Stephen has just stormed through Richmond, Virginia and left a path of destruction in its wake. During the height of the storm, a tree limb fell, broke through the plywood, and punctured the roof. Fortunately, no one was hurt and there was minimal water damage to the interior. The following day, the situation was assessed, pictures were taken, and Nationwide was contacted. Since this was a relatively new roof (3 years old on a 20 year roof), it still had a lot of value. The estimated cost to repair the damage was $35,000, which included repair to the plywood, broken joists, shingles, other materials, and labor. Since the roof still had about 17 years of expected life on it, the coverage A would pay about $28,750. 35k*.85 = $29,750 – deductible of 1k = $28,750

Hypothetical Situation 3 (Short Term Disability)

Mr. Porter is injured at work (a non existing condition), and is deemed unable to complete his job duties for a short amount of time, and has been unable to work for 2 weeks. He would be

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provided workers’ compensation (if he does not have Dominion provided disability insurance) because he was injured at work. He would be able to receive a maximum of $885.00 a week or $3,540 a month until he is able to return to work. In this situation, it would be best for Mr. Porter to invest in short term disability insurance through his job which would provide at least 60% income replenishment. The average premium for a new group short-term disability insurance is $214 per person. In this situation, a private policy would take a while to start to pay out benefits and the workers’ compensation and short term group insurance from Dominion would be a better option because it would provide benefits faster.

Hypothetical Situation 4 (Long Term Disability)

Mr. Porter is injured in a car accident and has suffered irreparable brain damage. His cognitive functioning has been severely impacted and would be deemed permanently disabled. In this situation, it would be best to invest in the Life Style Protection policy along with receiving short term benefits from Dominion Power. Depending on work related disability insurance, the risk incurred from a permanent long term condition would be best mitigated by a long term private insurance policy. The payout from this policy is at $126,000 a year until age 67, which is reasonably close to his original salary and could still provide a reasonable quality of life for his family compared to the other insurance quotes.

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Monthly Budget

The below tables illustrate the Porter’s income and estimated expenditures, including premiums for insurance. The Porter’s spend about 8% of their net income on insurance needs and little over half goes to toward all monthly reoccurring expenditures.

Combined Montly Income (Net) 13,351.33$ % of IncomeMonthly Payments

House Payment (PITI) 2,473.67$ 18.53%Car Payment 910.26$ 6.82%Insurance Premimums (Combined) 1,066.17$ 7.99%Utilities (elec,water, gas, cable, etc) 850.00$ 6.37%Food 800.00$ 5.99%Entertainment (activities) 800.00$ 5.99%Total 6,900.10$ 51.68%Income Less Expenditures 6,451.23$ 48.32%

Income Vs Expeditures

House Payment (PITI)

Car Payment

Insurance Premimums(Combined)

Utilities (elec,water, gas,cable, etc)

Food

Entertainment (activities)

Income LessExpenditures

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The following table shows a breakdown of each monthly insurance premium.

Insurance Type Monthly PremiumHomeowner's Insurance 119.25$ Auto Insurance (after accident) 329.26$ Life Insurance 203.49$ Health Insurance 175.00$ Short Term Disability Insurance Declined CoverageLong Term Disability Insurance 239.17$ Long Term Care Insurance Declined CoverageTotal 1,066.17$

Insurance Premiums

Homeowner's Insurance

Auto Insurance (afteraccident)

Life Insurance

Health Insurance

Long Term DisabilityInsurance

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Homeowner’s Insurance

Homeowner’s insurance is an absolute must as there is still mortgage on the property and the bank will require it in order to protect their investment. The Porters need enough insurance to cover the dwelling (about $510,000) at the current fair market value.

Overall, quotes from three companies were received; Nationwide, Statefarm, and Allstate. Nationwide was the cheapest by about $50.00 per month and also provide more than enough coverage.

Nationwide Statefarm AllstateDeductible

Per Incident ( All Perils) 1,000.00$ 1% (min $1000) 1,000.00$ Hurricane 1,000.00$ 1% (min $1000) %5 of dwelling

Protection for the PropertyDwelling Coverage 600,000.00$ 600,000.00$ 528,977.00$ Other Structures 60,000.00$ 60,000.00$ 52,898.00$

Ordinance or Law Coverage 60,000.00$ Not Specified Not Specified Replacement Cost Plus Dwelling Included Not Specified Not Specified

Inflation Protection Included Not Specified Not Specified Protection for "you"

Personal Liability 300,000.00$ 500,000.00$ 300,000.00$ Medical Payments 1,000.00$ 10,000.00$ 5,000.00$

Loss of Use 600,000.00$ Not Specified 52,898.00$ Fire Department Service Charge 500.00$ 500.00$ Not Specified

Protection for your personal itemsPersonal Property 420,000.00$ 450,000.00$ 317,386.20$

Jewelry 1,500.00$ 5,000.00$ 30,000.00$ Firearms 1,000.00$ 2,500.00$ Not Specified Money 200.00$ Not Specified Not Specified

Securities 1,000.00$ Not Specified Not Specified Business Property 500.00$ Not Specified Not Specified

Credit Card 1,000.00$ Not Specified Not Specified Merchandise Samples Not Specified 5,000.00$ Not Specified

OtherEarthquake (Yes, No) No Yes No

Premium per Month 119.25$ 168.92$ 167.00$ Premium per Year 1,431.00$ 2,070.00$ 1,993.00$

The A.M Best, S&P, and Moddy’s ratings for each of the three companies reviewed are as follows.

Rating Company Nationwide Statefarm AllstateA.M Best A+ A++ A+

S&P A+ AA AA-Moody's A1 AA1 AA3

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Auto Insurance

Since the Porters are well off, they need a significant amount of insurance to protect their assets in the rare occurrence of a catastrophic event. They have three vehicles; a 2015 Lexus LX570 driven by Alex, a 2011 Toyota Sienna LE driven by Krystal, and a 2009 Honda Accord EX driven by Alisa. For this quote the coverages for bodily injury and property damage are $500,000/$750,000/$250,000 respectively. Since the Porters have accumulated around 250k in cash and a home currently valued at a little over 500k, it would be in their best interest to protect these assets with relatively cheap auto insurance with a monthly premium of @279.26 per month or $1645.52 for six months, about a $30.00 savings. Due to the Porter’s financial situation, the deductible is $1000.00 for all three vehicles for both comprehensive and collision.

Due to the incident the Porters now pay $329.26 per month.

The discounts applied are as follows:

New Car $35.10Good Driver $87.29

Anti-Lock $21.47Anti-theft $10.56

Driving Experience IncludedGood Student $47.50

Financial Responsibility IncludedVehicle Count $578.26Persistency $137.76

Total Discount $917.94

The quote in the below table represents the coverage the Porter’s selected, which was provided by Geico. Geico has an A.M. Best financial strength rating of A++ and a debt rating of aaa. Standard and Poor’s rates Geico’s credit rating as AA+ and the financial strength of its subsidiaries as AA+.

Vehicle 2015 Lexus LX570 2011 Toyota Sienna LE 2009 Honda Accord EXPrimary Driver Alex Porter Krystal Porter Alisa Porter

Age 41 40 17Bodily Injury Liability $539.59 $500,000/$750,000 $500,000/$750,000 $500,000/$750,000

Property Damage Liability $338.50 $250,000 $250,000 $250,000Medical Payments $129.89 $10,000 $10,000 $10,000

Loss of Income N/A Declined Declined DeclinedUninsured Motorist Bodily Injury $46.23 $300,000/$300,000 $300,000/$300,000 $300,000/$300,000

Uninsured Motorist Property Damage $29.40 $100,000 $100,000 $100,000Upgraded Accident Forgiveness N/A Declined Declined Declined

Comprehensive $55.53, $21.30, $20.56 $1000.00 Deductible $1000.00 Deductible $1000.00 Deductible Collision $208.17, $101.76, $143.37 $1000.00 Deductible $1000.00 Deductible $1000.00 Deductible

Emergency Road Service $$2.24, $3.87, $5.11 Coverage Accepted Coverage Accepted Coverage Accepted Transportation Expense N/A Declined Declined Declined

Mechanical Breakdown Insurance N/A Declined Declined Declined

$279.26/Month or $1645.52/6 Months

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The company that was compared to Geico for automobile insurance was Allstate. According to their website, Allstate has a A.M. Best rating of A+ while Standard & Poor’s rated it an AA-. The quote received from Allstate was for $50,000/$100,000/$50,000 and the premium was $479.96 per month or $2874.00 for six months. It was determined that a) it was too expensive and b) the Porter’s needed a much higher amount of insurance to protect their assets. This quote also had a deductible amounts of $750.00 and $1000.00 for collision and comprehensive respectively for each of the three vehicles.

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Life Insurance for The Porter’s

Life insurance is an essential part of our existence. Oftentimes, we do not think life insurance is necessary until death occurs. As we grow, build families, and accrue expenses, thoughts of protecting our loved ones after death, becomes a reality. Mr. Alex Porter’s choice to acquire life insurance was based on the financial support he provides for his family, which includes his wife and children. Currently, his family has many expenses, such as monthly mortgage payments, one car payment, providing maintenance for two family-owned cars, other insurance payments, the costs of rearing three kids including the high cost of preparing for college. The following breakdown represents the estimated coverage the Porters would need if Alex passed away:

Required Life Insurance allocation:Loans, mortgage or rent, and other debts (6k extra): $451,000.00Income Replacement: $875,000.00Other Expenses: $20,000.00Your Total Life Insurance Need: $1,346,000.00Less Other Assets: ($265,300.00)Additional Life Insurance Needed: $1,086,700.00Policy Coverage $1,700,000.00Net amount after debts paid $1,229,000.00

The chart above represents the Porters expected needs, given Alex’s death. The calculations are so that the Porters can pay off the remaining amount of their mortgage, car payment and other debts the family have incurred. After paying off all debt the Porter Family will have $619,300.00 in the time of Alex’ death. Given Alex’s profession and interests he holds about $110,000 in a Brokerage account, as an investment, along with his 401K plan and college fund which can be used for an emergency if the family needs it.

They are currently looking at a 30 year Term, being offered by a number of different insurance companies as shown below:

Company MetLife Prudential Mutual of OmahaPolicy Type 30 Year Term 30 Year Term 30 Year TermPolicy Coverage $1,700,000 $1,700,000 1,700,000

Monthly Payment $234.18 $203.49 $238.92

A.M Best Rating A+ A+ A+S & P Rating AA- AA- A+

The Porters are looking for Insurance companies that have strong ratings and great customer services. The three companies are Met Life, Prudential Insurance and Mutual of Omaha. After close analysis of the different coverage’s and ratings, the Porters decided to go with Prudential. Prudential provides the closest amount of coverage they were looking for to pay off any

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outstanding debts, increase financial security, while maintaining a comfortable life style at a reasonable price. The premium is also the lowest at $203.49 per month.

An Insurer Financial Strength Rating measures the ability of an insurer to fulfill its financial obligations with regard to life insurance, homeowners insurance and other insurance products to the policyholder. Prudential has a strong rating and exceptional customer service. There Insurer Financial Strength Rating is A+ for A.M Best Company which means Superior and the Standard & Poor’s insurer financial strength is AA- which means Very Strong. All policies shown above are renewable at age 85 and exams are required within three to six weeks from signing up. The policy will expire when he turns 71 years of age. Mr. Porter expects to see all his kids graduate from college and live a long, prosperous life due to his healthy life style and access to medical care. If he does not live to see his children graduate, he will have peace of mind knowing that his life insurance will protect his family for the ambivalences in life.

Among the Companies that were reviewed, the A.M Best rating and S&P rating varied. Prudential Life and Mutual of Omaha had the best ratings; which were an A+ rating for the A.M best and an AA- for the S&P Rating and an S&P rating for Omaha is an A+ which is just a strong rating. The rates for these life insurance policies were collected online from each of the company’s website. The Annual and Monthly payments varied for each life insurer. The annual cost of 30-Year Term life insurance is a little over $200 a month.

Alex Porter will have a stronger sense of pride, freedom, and a peaceful mind knowing that he has entrusted his family’s security to the faithful hands of Prudential.

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Health Insurance

The Porters are provided health care through Mr. Porter’s employer, Dominion Resources. Dominion pays for 80% of the insurance premium, while the employee pays for 20% of the premium through a bi-weekly pre-tax deduction from Mr. Porter’s paycheck. Dominion uses Anthem as their health insurance provider, and has selected a very good plan for the employees. Below is a break down of the Anthem health plan:

Dominion Resources Health InsuranceIn-Network Benefits

AnthemPlan Type PPO

Deductible- Per Plan Year

One personTwo or more persons

$225 $450

Coinsurance 20% after deductibleMax. Out of Pocket

One personTwo or more persons

$1,500$3,000

Hospital Services Inpatient Services Outpatient Services

$300 per stay$125 per visit

Outpatient Surgery 20% or, 0% after coinsurance

Doctor Visits $25 PCP, $40 SpecPrescription Drugs-

Retail Pharmacy Up to 34 day supply: $15/$30/$45/$55

Emergency Care 20%, or 0% coinsurance

Basic Monthly Premium $175

Annual Premium $2,100

This health plan works great for the Porters due to the fact that for $175 per month all five members of their family are included, including their 17 year old daughter who is driving, and their 5 year old son who is special needs. No other supplemental insurance is needed for the family, and the employer provided health plan beats all other deals on the open market place.

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Disability Insurance

Disability insurance replaces lost income to the insured if there is an accident or illness that prevents the insured from working. Income replacement is crucial in situations that result in disability due to the risk of reduced income and incurring additional expenses due to being disabled or ill. In order to choose the best available decision or combination of decisions in regards to disability insurance, evaluations need to be made about benefits available from social insurance programs enforced by federal and state laws, workers’ compensation, group disability insurance, and private insurance that the Porter family can purchase.

Short Term Disability

Short term disability insurance pays a percentage of the insured’s’ salary if they become temporarily disabled, usually with a limit of two years. Dominion Power provides disability insurance for their employees. Depending on whether Dominion Power has integrated or non-integrated disability insurance, under an integrated policy, Mr. Porter would qualify for disability insurance due to work or non-work related accidents or illnesses. Under a non-integrated policy, Mr. Porter would not qualify for a non-work related incident, and would receive income replenishment from Dominion’s group disability policy. Under Virginia code, short term disability benefits from an employer kick in after a seven day calendar period of being disabled. Under Virginia law, the disabled person would be entitled to 2/3 of their gross average weekly wage. For the short term, it would be best to invest in group disability insurance provided by Dominion because it would kick in sooner than private insurance.

Long Term Disability

The Porter family has decided to invest in long term disability instead of buying a short term private renewable policy because in the long run it is a better option due to protecting against long-term loss of income. Mr. Porter would be protected under Virginia law to receive short term disability benefits in a reasonable time period, if necessary, so paying for a short term policy doesn’t make sense when some short term and long term disability insurance benefits have similar elimination periods. It also makes more sense to buy long term disability because some insurance companies allow social insurance benefits to be received in addition to long term disability payments. The insurance benefits would be offset by the workers’ compensation benefits, but this would allow for extra protection.

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Disability Quotes

Mutual Of Omaha Zander Insurance Group

LifeStyle Protection(Genworth)

A.M. Best Rating A+ A A-Monthly Benefit 5,000 7,275 10,500Benefit Period 24 months To age 65 Up to age 67

Elimination Period 60 days 90 Days 90 daysAnnual Premium $1,026.00 $2,084.44 $2,870.04

Monthly Premium $85.5 $173.70 $239.17

Since Social Security benefits are extremely hard to qualify for, the hypothetical situations will be based upon worker’s compensation, company provided benefits, and privately purchased insurance based upon the primary wage earner (Mr.Porter-175,000). In both situations, the best options would be The Lifestyle Protection Policy combined with Dominion provided disability insurance. The Lifestyle Protection policy replenishes 100% of Mr. Porter’s lost wages, has a guaranteed renewable policy, has an excellent A.M. Best rating, and has the highest monthly benefit. The

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Long Term Care

The Porters have decided not to get Long Term Care insurance, due to a variety of reasons. First of all, they have a comprehensive medical plan that will cover any medical issues that occur. They also have long-term disability insurance that will cover any medical problems that arise and are more serious in nature.

Second, the Porters have decided against Long Term Care insurance because they make a high household income of $225,000 and have a strong savings account. If anything were to occur, they have the ability to cover it without putting their family in jeopardy.

Additionally, Dominion Resources has a company sponsored pension and health plan for retirees that is based on salary, years of service, and age. If Mr. Porter were forced to retire early due to medical problems, he would have a pension and health care plan that would take care of any medical needs while providing an additional monthly income, in addition to the disability insurance, that would see Mr. Porter and his family through. Based on the Porter family’s set of circumstances, the Porters do not see it practical to have the added cost of Long Term Care insurance.

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Retirement Plan

401K

Mr. Porter contributes the maximum amount allowed, which is $17,500 per year. His employer matches up to 5% which equates to an additional $8,750 per year, for a combined contribution of $26,250 per year. Assuming a conservative annualized return of 5.5%, Mr. Porter can expect to have approximately $1,620,007 in his 401k, pre-tax and about $972,046 post tax.

According to an inflation calculator on buyupside.com, $972,046 in 24 years from today at a 3% inflation rate will have the same amount of purchasing power as $478,182 today. In order to have the same purchasing power in 24 years as $972,046 has today, $1,975,969 will be needed.

Current Value 84,300.00$ Yearly Contribution 17,500.00$ Employer Match (5%) 8,750.00$

Total Yearly Contribution 26,250.00$ Per Month Contribution 2,187.50$ 5.5% Annualized Return 0.458333333

24 Years Until 65 288 MonthsFuture Value 1,620,077.48$

Post Tax @ 40% 972,046.49$

401K

Brokerage Account

Mr. Porter has an affinity for self-directed investments. He currently has a portfolio valued at $110,000. He sporadically adds more funds when he sees a good solid investment. The below table is an indication of what the future value may be like if an 8.2% annualized return is achieved each year.

According to an inflation calculator on buyupside.com, $1,141,085 in 24 years from today at a 3% inflation rate will have the same amount of purchasing power as $561,338 today. In order to have the same purchasing power in 24 years as $1,141,085 has today, $2,319,590 will be needed.

Current Value 110,000.00$ Monthly Contribution Not Defined

Average Annualized return 8.20%24 Years until 65

Future Value with no Contribution 729,200.00$ Future Value with 6k per Year 1,141,085.00$

Brokerage account

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Combined

Though the Porter’s do have a nice savings and checking account (and will continue to add to it) a plan for retirement should still be made. The table below shows how much money per month the Porters would have as income in today’s dollars and adjusted for inflation at 3% using 24 years from today. Based on the table, if they both reach an average age (about 77) they will have almost $6,000 available to them each month. Since their house will be paid off, this should allow for a rather nice retirement. However, if they both (or one) lives to reach a very old age, then their 401k and brokerage accounts may not be enough to live on.

According to an inflation calculator on buyupside.com, $2,113,131 in 24 years from today at a 3% inflation rate will have the same amount of purchasing power as $1,039,520 today. In order to have the same purchasing power in 24 years as $2,113,131 has today, $4,295,560 will be needed.

Length Age Amount Per month Adjusted for Inflation10 years 75 17,609.43$ 8,662.00$ 15 Years 80 11,739.62$ 5,774.00$ 20 years 85 8,804.71$ 4,330.00$ 25 years 90 7,043.77$ 3,464.00$ 30 years 95 5,869.81$ 2,887.00$ 35 years 100 5,031.27$ 2,474.00$

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