Janet Lee and Ross both have employer-sponsored group health and dental plans that offer both a small amount of life insurance ($25,000 each), long-term disability (two-year any/own definition of disability for 67 percent of their salary) and a 80/20 co-pay health and dental plan. They feel lucky as they know the cost of health care can become very expensive with twins on the way. Jamie will go on maternity leave for 12 months and receive the maximum taxable EI benefit of $543 per week. They will use savings to supplement the income while she is on maternity leave.

Upon the birth of his two children, Ross immediately had worries about being able to provide for the growing family: diapers, formula, post-secondary expenses times two! What if something happened to him or Janet Lee? How would the surviving parent be able to provide for such a large family? What if they were to become disabled or were diagnosed with a critical illness?

Current Financial Situation

Assets (Janet Lee and Ross combined):

Chequing account: $4,300

Savings account: $25,200

Emergency fund savings account: $18,000

TFSA balance: $24,000

Car: $11,500 (Janet Lee) and $19,000 (Ross)

Liabilities (Janet Lee and Ross combined):

Student loan balance: $0

Credit card balance: $1,500 (they intend to pay this off immediately)

Car loans: $8,000

Income: Janet Lee: $45,000 gross income ($31,500 net income after taxes) NOTE this will change to the EI benefit a week prior to birth.

Ross: $73,000 gross income ($60,800 net income after taxes)

Monthly Expenses:

Mortgage: $1,542.77

Property taxes: $400

Homeowners insurance: $150

Utilities: $350

Food: $700 (includes diapers now)

Gas/maintenance: $485

Credit card payment: $1,500 (as they will pay it off in full this month)

Car loan payment: $389

Entertainment: $150

RRSP: $30

3. Janet Lee and Ross need to ensure that the surviving spouse and the children will not experience financial hardship in the event of a loss. Using the income replacement method and considering Rosss salary in the calculation, how much life insurance will they need? (4 marks)