Ethan, aged $42,$ works as a manager at Tech Innovations Inc. and earns $$100,000$ per year after taxes, a stable income expected to continue in the event of Olivia's passing. Olivia, aged $38,$ is a marketing manager earning $$80,000$ annually after taxes, with a similar income continuation plan if Ethan were to pass away. Both anticipate their incomes to grow at the rate of inflation and plan to retire at $65.$ The couple shares one child, Lily, aged $8.$

Ten years ago, Ethan and Olivia purchased a cozy suburban home for $$600,000.$ Their mortgage, the only long$-$term debt they hold, currently stands at $$250,000.$ Thanks to recent developments in the area, the home's appraised value has surged to $$900,000.$ The mortgage includes a joint first$-$to$-$die policy, ensuring it's covered in case of either Ethan or Olivia's demise.

For home protection, Ethan and Olivia secured a comprehensive homeowners' insurance policy with an $80\%$ co$-$insurance factor, initially covering $$500,000.$ This coverage remains unchanged, with a $$1,500$ deductible.

In terms of life insurance, Ethan has $$350,000$ of group coverage from his employer, while Olivia carries $$200,000$ in group coverage from her employer. Additionally, Ethan's disability insurance covers up to $$5,000$ per month, with a $120-$day elimination period. Olivia's disability coverage provides similar protection, with a maximum benefit of $$6,500$ per month and a $90-$day elimination period.

Both Ethan and Olivia own cars$$Ethan drives a $2016$ Toyota Camry, and Olivia owns a $2019$ Honda CR$-$V$.$ They have adequate auto insurance coverage to meet their province's requirements.

Their average tax rate is estimated to be $30\%.$

Required:

$($a$)(1)$ Identify at least $5$ risks the family face, and $(2)$ evaluate and explain the severity and frequency of each risk identified.

$($b$)$ Using the income approach, calculate life insurance needs for Ethan and Olivia each.

$$ Use a $2\%$ after$-$tax real discount rate.

$$ Both Ethan and Olivia want to insure $80\%$ of their income.

$$ They want to set aside CPP payments for emergencies and retirement. Thus, exclude survival$/$child CPP pension in your calculation.

$$ Assume each will be financially independent in their retirement years.

$($c$)$ Using the expense approach, calculate life insurance needs for Ethan and Olivia each $.$ The followings are additional information needed to apply expense approach.

Annual Expenses

Food $$20,000$

Transportation $$8,000$

Childcare $$18,000$

Loan payments $$35,000$

Clothing $$5,000$

Home maintenance $$12,000$

Utilities $$8,000$

Miscellaneous $$10,000$

Savings $$41,000$

Entertainment $$8,000$

Travel $$15,000$

Changes in expenses if one of the income earners passes away:

$$ Food, transportation, clothing, miscellaneous $$ reduced by $30\%$

$$ Entertainment, travel $$ reduced by $40\%$

$$ Savings $$ eliminated

$$ Childcare expenses will be as follows:

$$ From now $-$ age $11-$ $$18,000$

$$ Age $12-17-$ $$12,000$

$$ Age $18-21-$ $$20,000$

$$ After Age $22-$ eliminated

$$ Other expenses $$ stay the same.

Other conditions:

$$ Use a $2\%$ after$-$tax real discount rate.

$$ They want to set aside CPP payments for emergencies and retirement. Thus, exclude survival$/$child CPP pension in your calculation.

$$ Assume each will be financially independent in their retirement years.

$$ Expenses will increase, matching inflation.

$($d$)$ Should Ethan and Olivia increase or decrease their disability coverage? Explain why.

$($e$)$ Should Ethan and Olivia amend their homeowners$$ insurance policy? If a fire occurred at their home, and it caused $$200,000$ in damages, how much would they receive if anything?