Jay and Lisa Clark have recently purchased a new home with a market value of $525.000 and a mortgage of $472,500. Lisa also just gave birth to a baby girl, Sarah, and Lisa will be on maternity leave for 12 months. Prior to the leave she was a human resource manager earning a gross salary of $80,000 per year or $56.000 net after tax. She is planning to go back to work full-time in one year. Her employee benefit plan provides group life insurance equivalent to one times annual gross earnings which are not expected to change. She is also covered for disability insurance which will pay up to 70% of her gross earnings before tax if she is totally disabled. Jay works as a plumber and runs his own business earning $80,000 gross per year or $56,000 net after tax. He currently does not have any life or disability insurance and he is not covered against injuries on the job through workers compensation. His business has been growing every year so he expects his income to increase in the future as well. Both Jay and Lisa are non-smokers and currently in good health, however Lisa's family has a history of cancer and heart disease so she is concerned that she may not be insurable in the future. Their primary concern is to have enough insurance to pay off the mortgage on the death of either one of them and to provide sufficient funds for their child's education and upbringing and in the event that only one parent dies, there needs to be sufficient capital to pay an income to the surviving spouse. They expect this to cost $500,000 in the event both parents were deceased in the near term. In addition, the surviving spouse may need to use some of the total insurance proceeds to supplement any shortfall arising from having only one income. The annual net income required for either surviving spouse will be $6.000 per month after tax. They would also like the insurance to cover the following additional expenses: Funeral and medical expenses of $20.000 each; probate and legal fees of $5,000 each; credit cards debt of $10,000 each; and short term living expenses of $5,000 per month for at least three months assuming the survivor takes a leave of absence from employment. They also have some assets that would be payable to the surviving spouse and would be used to reduce the amount of insurance required. Jay has $20,000 in his cash account and $90,000 in Balanced mutual fund. Lisa has $50,000 in a high interest savings account. They would both be eligible for the CPP death benefit which would pay out $2,500 lump sum to the surviving spouse. + Required: 1. Prepare a capital needs analysis for both Jay and Lisa using the information provided. 2. This analysis will be used to recommend a specific type and amount of life insurance to address their needs. 3. In addition, Jay needs recommendations relating to private disability coverage including: occupation type, benefit amount and period, elimination period, and any other riders that he should consider. 4. Jay also wants to know if he would be eligible for any public disability insurance through CPP or El. LIFE INSURANCE NEEDS ANALYSIS CLIENT NAME February 21 ole (1) AVAILABLE ASSETS Assets Liquid Assets (Cash, T-Bills, Bonds, etc) Investment Assets (Mutual Fund, Stocks) - After tax Other Assets Lump Sum Benefits From: Canada Pension Plan Company Pension Plan Other Total Face Value of Current Life Ins. Policies Group Individual Mortgage/Loan Insurance Policies TOTAL ASSETS AVAILABLE: olo 0 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 (2) CASH REQUIRED Funeral and Medical Expenses Probate, Executor, Legal and Accouting Fees Outstanding Debts (Exclude Mortgage) Short Term Living Expenses Capital Gains Tax Income Taxes Mortgage Principal Outstanding Children's Post Secondary Education 0 0 0 0 CASH REQUIRED: Capital Available (Neg.-Insurance Required) (3) ANNUAL NET INCOME REQUIRED FOR SURVIVING SPOUSE Income required to maintain Standard of Living Less Annual Income Sources: Spousal Annual Net Income after tax Canada Pension Plan Registered Pension Plan Other Income Sources Additional Annual Income Required After tax rate of return required for income Capital Required for Income (4) LIFE INSURANCE REQUIRED (Neg=Insurance Required) 0 44 45 46 47 48 49 50 52 53 54 4.00% LIFE INSURANCE NEEDS ANALYSIS CLIENT: NAME February 21 0 0 (1) AVAILABLE ASSETS Assets Liquid Assets (Cash, T-Bills, Bonds, etc) Investment Assets (Mutual Fund, Stocks) Other Assets Lump Sum Benefits From: Canada Pension Plan Company Pension Plan Other 0 0 0 0 0 Total Face Value of Current Life Ins. Policies Group Individual Mortgage/Loan Insurance Policies TOTAL ASSETS AVAILABLE: olo 0 0 (2) CASH REQUIRED Funeral and Medical Expenses Probate, Executor, Legal and Accouting Fees Outstanding Debts (Exclude Mortgage) Short Term Living Expenses Capital Gains Tax Income Taxes Mortgage Principal Outstanding Children's Post Secondary Education 0 0 0 0 0 0 CASH REQUIRED: Capital Available (Neg.-Insurance Required) (3) ANNUAL INCOME REQUIRED Income required to maintain Standard of Living 0 0 Less Annual Income Sources: Spousal Annual Net Income Canada Pension Plan Registered Pension Plan Other Income Sources Additional Annual Income Required After Tax Rate of Return on Capital Required for Income 0 0 4.00% Capital Required for Income (4) LIFE INSURANCE REQUIRED (Neg=Insurance Required) Jay and Lisa Clark have recently purchased a new home with a market value of $525.000 and a mortgage of $472,500. Lisa also just gave birth to a baby girl, Sarah, and Lisa will be on maternity leave for 12 months. Prior to the leave she was a human resource manager earning a gross salary of $80,000 per year or $56.000 net after tax. She is planning to go back to work full-time in one year. Her employee benefit plan provides group life insurance equivalent to one times annual gross earnings which are not expected to change. She is also covered for disability insurance which will pay up to 70% of her gross earnings before tax if she is totally disabled. Jay works as a plumber and runs his own business earning $80,000 gross per year or $56,000 net after tax. He currently does not have any life or disability insurance and he is not covered against injuries on the job through workers compensation. His business has been growing every year so he expects his income to increase in the future as well. Both Jay and Lisa are non-smokers and currently in good health, however Lisa's family has a history of cancer and heart disease so she is concerned that she may not be insurable in the future. Their primary concern is to have enough insurance to pay off the mortgage on the death of either one of them and to provide sufficient funds for their child's education and upbringing and in the event that only one parent dies, there needs to be sufficient capital to pay an income to the surviving spouse. They expect this to cost $500,000 in the event both parents were deceased in the near term. In addition, the surviving spouse may need to use some of the total insurance proceeds to supplement any shortfall arising from having only one income. The annual net income required for either surviving spouse will be $6.000 per month after tax. They would also like the insurance to cover the following additional expenses: Funeral and medical expenses of $20.000 each; probate and legal fees of $5,000 each; credit cards debt of $10,000 each; and short term living expenses of $5,000 per month for at least three months assuming the survivor takes a leave of absence from employment. They also have some assets that would be payable to the surviving spouse and would be used to reduce the amount of insurance required. Jay has $20,000 in his cash account and $90,000 in Balanced mutual fund. Lisa has $50,000 in a high interest savings account. They would both be eligible for the CPP death benefit which would pay out $2,500 lump sum to the surviving spouse. + Required: 1. Prepare a capital needs analysis for both Jay and Lisa using the information provided. 2. This analysis will be used to recommend a specific type and amount of life insurance to address their needs. 3. In addition, Jay needs recommendations relating to private disability coverage including: occupation type, benefit amount and period, elimination period, and any other riders that he should consider. 4. Jay also wants to know if he would be eligible for any public disability insurance through CPP or El. LIFE INSURANCE NEEDS ANALYSIS CLIENT NAME February 21 ole (1) AVAILABLE ASSETS Assets Liquid Assets (Cash, T-Bills, Bonds, etc) Investment Assets (Mutual Fund, Stocks) - After tax Other Assets Lump Sum Benefits From: Canada Pension Plan Company Pension Plan Other Total Face Value of Current Life Ins. Policies Group Individual Mortgage/Loan Insurance Policies TOTAL ASSETS AVAILABLE: olo 0 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 (2) CASH REQUIRED Funeral and Medical Expenses Probate, Executor, Legal and Accouting Fees Outstanding Debts (Exclude Mortgage) Short Term Living Expenses Capital Gains Tax Income Taxes Mortgage Principal Outstanding Children's Post Secondary Education 0 0 0 0 CASH REQUIRED: Capital Available (Neg.-Insurance Required) (3) ANNUAL NET INCOME REQUIRED FOR SURVIVING SPOUSE Income required to maintain Standard of Living Less Annual Income Sources: Spousal Annual Net Income after tax Canada Pension Plan Registered Pension Plan Other Income Sources Additional Annual Income Required After tax rate of return required for income Capital Required for Income (4) LIFE INSURANCE REQUIRED (Neg=Insurance Required) 0 44 45 46 47 48 49 50 52 53 54 4.00% LIFE INSURANCE NEEDS ANALYSIS CLIENT: NAME February 21 0 0 (1) AVAILABLE ASSETS Assets Liquid Assets (Cash, T-Bills, Bonds, etc) Investment Assets (Mutual Fund, Stocks) Other Assets Lump Sum Benefits From: Canada Pension Plan Company Pension Plan Other 0 0 0 0 0 Total Face Value of Current Life Ins. Policies Group Individual Mortgage/Loan Insurance Policies TOTAL ASSETS AVAILABLE: olo 0 0 (2) CASH REQUIRED Funeral and Medical Expenses Probate, Executor, Legal and Accouting Fees Outstanding Debts (Exclude Mortgage) Short Term Living Expenses Capital Gains Tax Income Taxes Mortgage Principal Outstanding Children's Post Secondary Education 0 0 0 0 0 0 CASH REQUIRED: Capital Available (Neg.-Insurance Required) (3) ANNUAL INCOME REQUIRED Income required to maintain Standard of Living 0 0 Less Annual Income Sources: Spousal Annual Net Income Canada Pension Plan Registered Pension Plan Other Income Sources Additional Annual Income Required After Tax Rate of Return on Capital Required for Income 0 0 4.00% Capital Required for Income (4) LIFE INSURANCE REQUIRED (Neg=Insurance Required)