Rob, 52 is a construction worker earning $95,000 gross per year. His wife, Monica, 52, is a
Question:
Rob, 52 is a construction worker earning $95,000 gross per year. His wife, Monica, 52, is a nurse earning $90,000 gross per year. They have a 15-year old daughter and a
19-year old son. Rob and Monica expect the children to be financially independent in 10 years.
Rob and Monica intend to work until they are 67 years old. If one of the couple dies, the other will continue to work at the same job and earn the same income.
The family currently spends $112,000 per year including all debt and mortgage payments. If one of the couple dies, the annual spending on expenses will fall to $95,000 per year till the children are financially independent. Then the annual spending on expenses will fall to $75,000 per year till retirement.
Rob and Monica have a joint-first to die, term life insurance policy with a face value of $300,000 and ten years until maturity.
Assumptions:
- 40% of expenses till children are financially independent needs to be insured.
- 20% of expenses after children are financially independent till retirement needs to be insured.
- Family will continue to live in the home after one of the couple dies.
- Funeral expenses $20,000.
- Payments are at the beginning of the period.
- Real after-tax interest rate of 2% p.a.
Ignore CPP pension and benefits in this question.
Required:
1. Identify two risks that Rob and Monica are exposed to and explain why they are risks and how the risks you have identified impact their personal finances?
2. What is the amount of life insurance needed if Rob dies today using the Expense Approach?
Auditing A Practical Approach with Data Analytics
ISBN: 978-1119401742
1st edition
Authors: Raymond N. Johnson, Laura Davis Wiley, Robyn Moroney, Fiona Campbell, Jane Hamilton