Mike is 35 and works as a senior manager at a local company. His ‘take home’ pay, after deductions is $4500 monthly. His wife’s name is Mary. They have two children, Luke (age 6) and Ruby (age 3). Mary, also 35, works full time, earning ‘take home’ pay, after deductions of $3500 each month.

They own a home in Waterloo, valued at $375,000. Their mortgage is with the TD Bank, and the current balance of their mortgage is $250,000. The monthly mortgage payments are $1200. The property taxes on their home are $300 monthly, with homeowner’s insurance costing $100 monthly. In a typical year, they spend an average of $350 monthly on home maintenance.

The monthly, bundled cost of their home phone, cell phone, internet and cable amounts to $320. The bills they receive each month for ‘water/natural gas’ and ‘electric/hydro’ are $250 and $240 respectively.

As a growing family of four, they spend $800 each month on groceries. Luke and Ruby are part of the ‘before and after school’ daycare program at their school. This service costs $860 each month. Music lessons and minor sports cost $200 monthly.

In terms of their vehicles, they own at Honda Accord valued at $19,500, and a Chrysler Van, valued at $10,000. They have a $9000 loan on the Van. The loan payment on the van is $500 monthly, and insurance payments $100 monthly per vehicle. On average, vehicle maintenance and repairs amount to $100 per month. Total gasoline costs for both vehicles are $350 monthly. Assume each vehicle incurs one half of the stated expenses. It costs $300 per year for license and registration.

Mike and Mary enjoy entertainment, dining out and annual holidays. Each month, they spend approximately $150 on entertainment (theatre and sporting events), $200 on restaurant dining, and set $500 aside for their annual vacation. They also spend $200 monthly on recreation (sports and gym memberships), and $100 monthly on ‘beer, spirits and wine’.

On a monthly basis, they spend $250 total on clothing, $80 on personal pharmacy items and an additional $100 per month on miscellaneous items. They make a $400 per month payment toward their credit card debt of $18,000.

Mike and Mary recognize the importance of post-secondary education for their children and estimate it will cost about $35,000 to fund a 3 year college education for each of their children. At this point in time, they have set aside $5000. Assume the $100 per month RESP contribution amount is sufficient.

Mike has group life Insurance coverage through his employer for $75,000. Mary has no existing Life Insurance.

Their current RRSP balances are $40,000 for Mike and $5,000 for Mary. RRSP contributions are $125 each monthly. Assume that is sufficient. Both Mike and Mary will be eligible for the maximum CPP retirement benefits, provided they both continue to maintain their present income levels until retirement.

They have a joint non-registered investment balance of $50,000.

In case of the premature death of either Mike or Mary, they both agree that they would like to have sufficient life insurance to pay off all final expenses (expected funeral costs are $15,000), and eliminate all debts. Mike would continue to work but reduce his hours (and income) by 20% to spend more time with the children. Mary, however, would stop working in the event of Mike’s premature death.

Required:

1. Create a Current Net Worth Statement & Cash Flow (5 marks)

2. Using the Capital Needs Analysis, how much life insurance is required on Mike’s life? (5 marks)

3. Using the Capital Needs Analysis, how much life insurance is required on Mary’s life? (5 marks)

4. Identify the types of expenses which are least likely to change in the event of the death of a spouse. (1 mark)

5. Identify the types of expenses which are most likely to change in the event of the death of a spouse. (1 mark)

6. Identify what items are most likely to change if this couple were doing this analysis 20 years in the future (ignore inflation)? (1 mark)

7. Would you recommend Term insurance or Whole Life insurance? Explain why. (1 mark)

8. Are there riders or other types of life insurance you would suggest for Mike and Mary?