Steven is a Senior Manager of a technology company for the past 10 years. Last July, his
Question:
Steven is a Senior Manager of a technology company for the past 10 years. Last July, his friend died in an accident, leaving the family with very little money for their daily living. After this incident, Steven is concerned about his family's standard of living should he die prematurely. From his fact finder, you have extracted the following information.
He earns an income of $3,800 per month and expects to work for 25 years before retiring. He expects wages to grow at 5% p.a. over the long run. He has $12,000 savings and expects investments to grow at 6% yearly. He estimates his fixed expenses to be $3,000 per month, and inflation is at 3% per annum. His outstanding loans consist of a housing loan of $160,000 and a renovation loan of $50,000. As you are Steven's financial planner, he has approached you to recommend life insurance coverage for his family should premature death occur to him.
(a) You are required to use the income-based approach to determine the amount of insurance Steven needs.
(b) Similarly, use the expenses-and-liabilities approach to determine the amount of insurance Steven needs.
(c) Comment on the income-based approach and the expenses-and-liabilities approach of calculating insurance needs.
South-Western Federal Taxation 2018 Comprehensive
ISBN: 9781337386005
41st Edition
Authors: David M. Maloney, William H. Hoffman, Jr., William A. Raabe, James C. Young