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ex2-1 eduardo

Eduardo has monthly expenses of $3,000 that will continue regardless of whether he is working. He has $10,000 in savings and no income from other sources. A 90-day elimination period would essentially deplete Eduardo's reserves, so a 60-day elimination period is probably the maximum he should consider. However, if Eduardo had the same $3,000 of monthly expenses and also has $2,000 in monthly income from investments to supplement his savings, he might want to choose a 90-day elimination period. Although he still only has $10,000 in savings, he can apply the $2,000 monthly investment income to ongoing expenses. He'll only need to replace $1,000 each month from savings.