Janice Davidson, single mother of two in her late 20s, manages an in-store boutique at
Lacy's Department Store. She earns $60,000 a year before taxes (her gross income) and
pays 20% in taxes. Janice's fixed monthly living expenses are $2,400 with another $1,600
in variable/discretionary living expenses. Janice has $13,000 in emergency savings. Janice
has an employer-paid disability benefit through the department store where she works.
Lacy's provides its employees a long-term disability insurance benefit that pays 60% of an
employee's gross salary up to a maximum of $5,000 a month.
* Now assume that Lacy's offers employees an option to increase their disability coverage
through the company insurance plan. Janice would have to pay $10 per month to increase
her disability benefit to 60% of her gross income. If she were to suffer a long-term
disability, how much monthly income would Janice receive through this program? Would
the new total cover her fixed monthly expenses? Would she be able to put anything into
her other discretionary spending?