Jack, aged 49, and Jill, aged 48, are new potential clients.  Jack works in marketing at a mid-size firm in Toronto earning $105,000 a year. Jill, is an accountant.  In 2021, she earned $165,000 working part-time. 

 

Jack and Jill are comfortable financially and happy with their careers. They believe that they could easily find work if required.   

 

At 49, Jack has been discussing retirement planning.  Jack and Jill tell you they plan on working for another 15 years and then retiring.  They have two children; Jim and James.  Jim is 12 and James is 11.  Jill 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 Jack and Jill are happy. Jack's employer provides life insurance coverage equal to two-times his base salary, and spousal life insurance equal to one-times his base salary. 

 

Jack and Jill give you the following information:

1. Jack's average tax-rate is 32%
2. Jill's average tax-rate is 39%
3. 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 Jack	106,000
RRSP Jill	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 Jack to replace his income.

Question 2

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

Question 3

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

Question 4

What is the capital available in the event of death?

Question 5

What are the issues with the expense approach?