Barrie, aged 49, and Carmen, aged 48, are new potential clients. Barrie works in marketing at a mid-size firm in Toronto earning $105,000 a year. Carmen, is an accountant. In 2021, she earned $165,000 working part-time. Barrie and Carmen are comfortable financially and happy with their careers. They believe that they could easily find work if required. At 49, Barrie has been discussing retirement planning. Barrie and Carmen tell you they plan on working for another 15 years and then retiring. They have two children; Danny and Diane. Danny is 12 and Diane is 11. Carmen wants her children to continue with their studies after high school and she wants them to be financially secure. Although working from home has been hard, both Barrie and Carmen are happy. Barrie's employer provides life insurance coverage equal to two-times his base salary, and spousal life insurance equal to one-times his base salary.

Barrie and Carmen give you the following information:

Barrie's average tax-rate is 32%

Carmen's average tax-rate is 39%

Real rates of interest are 2.5%

In addition, they provide you with insight into their finances:

Assets Bank accounts 8,000 TFSAs for emergencies 29,000 TFSAs for retirement 96,123 RESP's 32,542 RRSP Barrie 106,000 RRSP Carmen 119,000 Investments, non-registered 73,000 House at market value 1,315,000

Liabilities Consumer debt, loans 16,400 Mortgage 570,000

Question 1

Using the income approach, calculate the amount of life insurance Barrie need to replace his income.

Question 2

Using the income approach, calculate the amount of life insurance Carmen should purchase to replace her income.

Question 3

Based on the information in the case, what type of life insurance is recommended for Barrie and Carmen and why?

Question 4

What is the capital available in the event of death?

Question 5

What are the issues with the expense approach?