Problem
You are financial adviser working through the planning process with Chandler and Monica Bing. Throughout the meetings and discussions, the subject of risk management and insurance has come up, specifically life insurance. You've observed that Chandler seems indulgent and pays little attention to his health. He was overweight, used alcohol to excess during his frequent "nights out with the guys", and also smokes a pack a day of cigarettes. When questioned, he has admitted that his doctor had warned him of his unhealthy habits which has caused high cholesterol and potential for significant illness. Chandler is only 36 years old. Chandler's employment as a "transponster" has been going well over the years generally, but Chandler doesn't always get along with his superiors and he has moved around from employers a bit from time to time. He has been at his latest job at Vandelay Industries for two years now. As part of his benefits, Chandler has group life insurance of two times his salary.
Chandler currently earns around $80,000 per year with an expectation of raises of 2% annually for the foreseeable future. He'd like to retire at age 60.
Monica, on the other hand, is as steady as a rock and solid as one. She exercises regularly and has a healthy cooking hobby from her days in the past as a chef (Chandler doesn't like her cooking so often grabs fast food when he's on the way out to supplement Monica's so-called cooking). Monica's physician has told her that she is in excellent health and is like a woman ten years younger than she is. Monica is 35. Even after having their twins three years ago, Monica managed to rid herself of the "baby weight" and get into great shape. Monica does not work outside of the home as she takes care of the twins, a boy named Ross and a girl named Rachel. She's thought about going back to work part time to help save for the twins' college education. Even though Chandler's not really "into it", they agree that they'd like to send the kids to a normal state school and pay for pretty much everything for them.
The couple has no life insurance aside from the group life contract at Vandelay. Monica is worried that if something happened to Chandler, the family would have a hard time making the transition, affording to raise the twins and fund everything else that they need to address as far as obligations and goals. Chandler has chimed in and explained that they don't have any extra money for insurance.
The couple also has a mortgage balance of $225,750 on their home, car loans of $25,330, a student loan balance of about $18,000 from Chandler's college days, and credit card debt with a current balance of $6,800.
Task
A. What do you think of the couple's overall risk profile?
B. What recommendations can you make to address your thoughts in "Question A" above?
C. Do you think that they need more insurance? Why?
D. Assuming you believe that they are under-insured if Chandler dies prematurely, what type of life insurance would you recommend and why? In what amount or amounts? Show your calculations and explain your method.